Constructive  Economics 

(Second  Supplement  to  Book  SOLUTION) 
By 

PAUL  G.  LEWIS 

A  new  text  book  for  Statesmen  and  Students  pointing 

out  and  correcting  Fundamental  errors  in 

Theories  relating  to  Economics. 


SOLUTION  and  First  Supplement       .        .  $4.00 

SOLUTION,  First  and  Second  Supplement  .      5.00 

First  Supplement           .        .        ,        .        .  .25 

Second  Supplement  (Constructive  Economics)  .      1.00 


Published  by  PABST  PUBLISHING  CO.,  Milwaukee,  Wis. 

1920 


Copyright,  Pabst  Publishing  Co.,  1920 


S.    E.    Tate    Printing    Co..  Milwaukee 


-    ■  t 


y 

CONTENTS. 

Page 

Quotation 2 

Special  Notice  2 

Introduction 3 

PART  1 

Money  must  be  based  on  Value 4 

Redemption  of  Fiat  Money  considered 8 

Summary  as  to  Means 13 

PART  2 

Morals  as  to  Production  and  Distribution 14 

Language  of  Weights  and  Measures 14 

Language  of  Money 14 

Standards    of    Measurements 15 

Powers  and  Properties  of  Money 16 

Diagram,  Selling  Price  of  Operator 22 

Diagram,  Selling  Price  of  Manufacturer 22 

Diagram,  Selling  Price  of  Wholesaler 23 

Diagram,  Selling  Price  of  Retailer 23 

Diagram,   Recapitulation    24 

Morals  as  to  Burdens  Imposed 25 

Morals  as  to  Value 26 

Morals  as  to  Units  of  Values 27 

Facts  as  to  Standard  of  Value 28 

Illustration,  Kite-Dollar  29 

Morals  as  to  Theoretical  Standard  of  Value 34 

Illustration,   Economic   Burdens TH 

Morals  as  to  Standard  of  Value 39 

Conclusions  Relating  to  Money 40 

Conclusions  about  Economic  System 41 

Morals  as  to  Gold  and  Labor 41 

Object  of  Labor  Certificate 42 

Conclusions  about  Labor  Certificate 42 

Conclusions  about  Fiat  Money 43 

Primary  Conclusions  1 44 

Primary  Conclusions  2 44 

Primary  Conclusions  3 44 

PART  3 

Introduction  to  Credit 46 

To  Buy  Merchandise  "ON   CREDIT" 51 

Credit  continued   57 

Misuse  of  word  Credit 61 

Sell  on  Credit 62 

Satisfaction  in  Exchange 62 

Summary  of  Errors  and  Facts 63 


421323 


2       /"i  t  \/i  ^QWsTB{7^Ti\«E/^coNbMics — 2nd  Supplp:me]\t 

First  Principles  of  Political  Economy  (1879)  by 
Prof .  Wm.  D.  Wilson  of  the  Cornell  University. 

Page  20 — " there  is  an  almost  endless  diversi- 
ty of  opinions  among  writers  on  the  subject,  and  so 
much  of  diversity  and  uncertainty  is  there  in  their 
teaching  that  the  doctrines  of  the  schools  and  the 
professed  teachers  of  Political  Economy  have  been 
found  of  very  little  value  by  practical  men,  and  a 
very  unsafe  guide  to  statesmen,  financiers,  and  busi- 
ness men  generally." 

Page  23 — "Of  all  the  branches  of  knowledge  that 
lay  claim  to  be  considered  as  sciences,  there  is  no  one 
perhaps  that  is  less  settled  in  the  definitions  of  its 
terms,  and  the  acceptance  of  any  general  first  prin- 
ciples, than  Political  Economy." 

To  raise  Political  Economy  to  the  dignity  of  a  science  by 
presenting  general  first  principles,  and  also  to  bring  it  w^ithin 
the  scope  of  "economy"  as  distinguished  from  principles  of 
"extravagance"  in  existence  and  practical  operation — is  the 
aim  and  object  of  this  work. 

Paul  G.  Lewis. 


SPECIAL  NOTICE. 

This  publication  called  Constructive  Economics,  is  the 
second  Supplement  to  the  book  SOLUTION,  published  in 
June,  1919,  whereof  the  first  Supplement  w^as  issued  in  Oc- 
tober of  the  same  year,. 

That  book  presents  the  philosophy  of  Finance,  Banking 
and  Money  in  an  elementary  manner.  It  points  out  and  ex- 
plains the  fictions  in  Finance  and  Banking.  It  contains  an 
analysis  of  the  monetary  conditions  and  operations.  It  treats 
on  the  different  kinds  of  money  show^ing  the  various  standards 
of  value  and  that  of  "debt"  in  their  evolution  and  in  use  today 
in  the  United  States.  It  discloses  the  imminent  and  urgent 
need  of  a  remedy  relating  to  a  new  standard  of  value  for 
money.    It  presents  a  new  standard  of  value. 

The  "standard  of  value"  whatever  it  may  be  will  in  time 
be  recognized  as  that  pivotal  point  or  that  creative  cause  upon 
which  depends  all  good  or  evil  according  to  the  character 
thereof. 

The  purposes  of  these  Supplements,  issued  from  time  to 
time,  are  to  amplify  with  more  detailed  explanations  the  gen- 
eral principles  embodied  in  the  parent  book. 

Paul  G.  Lewis. 


INTBODUCTION 


INTRODUCTION. 

The  industrial  achievements  of  the  last  100  years  were 
attained  by  means  of  new  knowledge  presented  by  inventors. 

In  the  proportion  and  to  the  extent  that  inventions  of 
merit  received  proper  recognition,  to  that  same  extent  was 
society  benefited.  This  was  merely  a  demonstration  of  a 
natural  law  that  something  of  superior  merit  always  dis- 
placed others  of  inferior  merit.  It  was  in  short  the  law  of  the 
"Survival  of  the  Fittest  by  natural  selection  during  the  Strug- 
gles for  Existence." 

In  the  operation  of  this  natural  law  in  the  industrial  realm 
there  was  always  a  deliberate  but  peaceful  competition  which 
inventions  instituted  upon  their  adoption. 

This  same  principle,  exemplified  in  the  industrial  achieve- 
ments, must  form  our  basis  for  political,  social,  financial  and 
moral  progress. 

Violent  or  sudden  changes  are  therefore  destructive  of 
orderly  and  permanent  progress. 

With  this  natural  law  in  mind  I  have  presented  an  eco- 
nomic remedy  which  in  no  way  interferes  or  opposes  the  sys- 
tem at  work ;  on  the  contrary  it  seeks  to  strengthen  such  sys- 
tem primarily  and  thereafter  render  services  for  gradual  cor- 
rection of  errors. 

The  remedy  therefore  displaces  no  custom,  no  regulation, 
and  no  rule  of  conduct  in  and  by  its  adoption,  but  simply  adds 
another  rule  to  those  already  in  existence ;  and  if  the  applica- 
tion of  this  remedy  after  adoption  proves  to  possess  superior 
merit,  then  as  a  natural  consequence  other  inferior  customs, 
rules  and  regulations  will  gradually  diminish  in  their  impor- 
tance and  finally  disappear, 

Paul  G.  Lewis. 


Constructive  Economics — 2nd  Supplement 


PART  I. 

MONEY  MUST  BE  BASED  ON  VALUE. 

(Comparative  Investigations.) 

(To  be  read  in  connection  with  first  suppleraent,  pages  10  to  12.) 


There  is  not  a  single  human  activity  in  all  the  world  re- 
quiring physical  force,  including  also  every  known  substance 
and  instrument  whereof  all  of  the  foregoing  used  as  a  "means" 
to  accomplish  an  end,  are  not  based  upon  or  do  not  possess 
something  of  inherent  value. 

In  the  case  of  physical  force  it  is  the  energy  exerted  used 
as  a  "means"  which  is  of  great  inherent  value,  be  this  means 
either  of  man,  animal,  water,  steam,  electric  or  gas  power. 

In  the  case  of  substances  or  instruments  used  in  connec- 
tion with  the  foregoing  as  a  "further  means,"  each  must  never- 
theless possess  an  inherent  value  to  accomplish  the  purposes 
of  their  use. 

Glue  is  used  as  a  means  because  of  its  inherent  value. 

Nails  are  used  as  a  means  because  of  their  inherent 
value. 

A  hammer  is  used  as  a  means  because  of  its  inherent 
value. 

A  knife  is  used  as  a  means  because  of  its  inherent 
value. 

Clothes  and  all  other  wearing  apparel  are  used  as  a 
means  of  protection  or  for  appearance  because  of 
their  inherent  value. 

Food  is  used  as  a  means  of  sustaining  life  because  of 
its  inherent  value. 

Shelter  is  used  as  a  means  of  protecting  man  and  his 
possessions  because  of  its  inherent  value. 

Theatres,  actors,  movies  and  music  are  used  as  a 
means  of  furnishing  pleasure,  amusement  and 
entertainment  because  of  their  inherent  value. 

Water,  air,  gas,  soil,  temperature,  etc.,  in  fact  every- 
thing on  earth  organic  or  inorganic,  solid,  liquid 
or  gaseous  used  as  a  means,  must  possess  some- 
thing of  inherent  value. 

It  is  the  inherent  value  and  that  alone  which  classifies 
everything  fit  or  unfit  as  a  "means"  for  use.  The  inherent 
value  of  a  thing  constitutes  the  very  beginning  and  founda- 
tion upon  which  rests  its  usefulness  as  a  means  of  employing 
it. 

MORAL. 

Only  the  inherent  or  natural  value  of  everything  de- 
termines its  qualifications  for  use  as  a  "means"  of 
procuring  or  producing  desired  results. 


Money  Based  on  Value 


This  fundamental  law  of  nature  applies  not  only  to  every- 
thing above  stated  but  gives  for  our  guidance  that  unfailingly 
sound  principle  which  should  be  applied  to  every  "means"  used 
in  the  operation  of  our  social,  financial,  industrial  and  political 
intercourse — national  or  international. 

The  only  exception  in  all  the  world  to  this  fundamental 
law  of  nature  is  the  uncompromising  philosopher  who  claims 
that  a  national  circulating  medium  used  as  a  "means"  for 
effecting  exchanges  of  commodities,  should  not  be  based  upon 
a  "standard  of  value." 

The  very  historical  record  of  the  evolution  of  money  in 
the  United  States  from  the  beads  of  Indians  to  the  gold  and 
silver  certificates,  contradicts  and  upsets  the  theory  of  the 
Greenbacker. 

A  national  medium  of  exchange  should  be  based  upon 
and  be  representative  of  something  of  inherent  value  even  as 
the  warehouse  receipt  centuries  ago  represented  the  money 
value  of  the  cotton,  rice,  tea,  sugar,  tobacco,  etc.,  stored  in 
the  warehouse,  or  the  Circulating  Notes  of  the  colonial  banks, 
represented  the  speculative  money-value  of  lands  in  the  wil- 
derness, and  finally  the  gold  and  silver  certificates  still  rep- 
resent the  money-value  of  the  gold  and  silver  coin  deposited 
in  the  U.  S.  Treasury. 

In  like  manner  the  Labor  Certificate  when  paid  out  by 
the  government  would  represent  the  money-value  of  labor 
^'already  performed"  for  the  government. 

The  Labor  Certificate  used  as  a  means  would  therefore 
be  based  upon  something  of  the  greatest  value  and  of  the 
greatest  necessity  to  the  welfare  of  a  nation  and  its  people  in 
times  of  peace  or  war. 

The  Greenbacker  having  thus  isolated  himself  in  the 
science  of  monetary  philosophy  by  invoking  the  aid  of  a 
principle  with  reference  to  "means"  which  is  absolutely  op- 
posed to  all  known  operative  laws  of  nature  and  contrary  to 
the  common  experiences  of  man — the  burden  of  proof  there- 
fore rests  upon  him  who  alleges  that  a  national  medium  of 
exchange  should  not  be  based  upon  a  "standard  of  value"  or 
a  standard  of  debt. 

Of  course  the  Greenbacker,  like  all  others,  expects  to 
exchange  his  Fiat  money  only  for  something  else  possessing 
inherent  value — but  that  is  giving  something  of  no  value  (ex- 
cept the  paper  and  ink  of  the  greenback)  for  something  else 
of  intrinsic  value.  The  Greenbacker  wants  to  get  something 
of  value  for  his  piece  of  paper  which  represents  nothing; 
in  short,  he  wants  to  get  something  for  nothing. 

Man  has  never  been  able  to  do  that  except  in  cases  of 
fraud.  Organic  and  inorganic  nature  (except  man)  cannot 
do  that — the  mechanical  laws  of  nature  preclude  fraud. 


6  Constructive  Economics — 2nd  Supplement 

I  would  therefore  be  more  than  pleased  to  receive  from 
any  source  any  statement  of  a  fact  in  operation  anywhere, 
pointing  out  a  single  instance  of  lawful  human  activity  in  any 
realm  where  any  kind  of  a  "means"  is  not  based  upon  some- 
thing possessing  inherent  value. 

The  only  possible  and  similar  instances  which  are  not 
based  upon  inherent  values,  are  those  of  fraud,  such  as  the 
Fiat  certificates  of  health,  Fiat  certificates  of  education.  Fiat 
certificates  of  character,  mentioned  and  fully  discussed  in  the 
1st  Supplement  to  the  book  SOLUTION  on  pages  10  to  12. 

Let  us  not  inject  or  introduce  the  element  of  fraud  into 
our  money  for  we  already  have  enough  legitimate  troubles 
embarrassing  our  economic  situation  and  condition  arising 
out  of  a  money  based  on  the  gold  standard  of  value,  as  well 
as  all  such  based  on  the  interest  bearing  standard  of  debt. 

MORAL. 

Every  known  "means"  used  in  every  lawful  human 
activity  from  the  most  inferior  to  the  most  superior, 
is  based  upon  or  represents  an  inherent  value,  ranging 
respectively  with  the  degree  and  character  of  the 
means. 

With  reference  to  production, — labor  is  the  high- 
est means  known  to  man. 

MORAL. 

With  reference  to  distribution,  money  is  the  high- 
est means  known  to  man. 

A  national  medium  of  exchange  being  a  "means" 
of  the  very  highest  type,  possessing  the  widest  range 
of  circulation  and  universal  application,  demands  a 
standard  of  value  which  in  its  supremacy  must  tower 
above  all  other  known  values  on  earth;  "labor^*  and 
that  alone  with  its  wages  can  meet  this  requirement. 

Money  is  the  "one  means"  whereof  there  is  no  equal.  It 
is  so  extensive  in  its  use  and  operations  that  everything  of 
natural  value  for  man  or  beast  comes  within  its  range.  It 
has  and  knows  no  limitations  in  human  affairs.  All  other 
known  means  operate  within  "narrow"  limits  whereof  their 
boundaries  are  definitely  prescribed  by  reason  of  their  natural 
fitness  easily  recognized. 

Again,  every  material  means  of  inherent  value  is  the 
product  of  two  other  means,  namely,  the  labor  of  man  and 
the  elementary  creations  or  productions  of  nature;  and  these 
other  two  means  must  be  essentially  qualified  and  adapted 
in  and  by  their  very  nature  to  bring  forth  the  desired  products 
for  human  use. 


Money  Based  on  Value 


Glue  is  a  product  of  labor  (a  means)  and  material 
(a  means) 

Nails  are  a  product  of  labor  (a  means)  and  material 
(a  means) 

A  hammer  is  the  product  of  labor  (a  means)  and  ma- 
terial (a  means) 

A  knife  is  the  product  of  labor  (a  means)  and  ma- 
terial (a  means)  ; 

Clothes  are  the  product  of  labor  (a  means)  and  ma- 
terial (a  means) 

Food  is  the  product  of  labor  (a  means)  and  material 
(a  means) 

Shelter  is  the  product  of  labor  (a  means)  and  ma- 
terial (a  means) 

Schools,  etc.,  are  operated  by  labor  (a  means)  and 
material  (a  means) 

Theatres  are  operated  by  labor  (a  means)  and  ma- 
terial (a  means) 

All  material  means  primarily  embrace  the  creations  or 
productions  of  nature,  such  as  stone  in  quarries,  mineral  in 
ore  bodies,  coal  in  deposits,  timber  in  forests,  etc.,  etc. — these 
consist  of  natural  values  in  their  natural  state  or  places. 

The  other  means  requires  the  labor  of  man  working  as 
a  creator  on  earth  to  bring  forth  from  the  elementary  material 
means,  the  finished  products  to  be  used  as  an  ultimate  means 
of  supplying  human  wants. 

Human  labor  is  the  "working-creative-cause"  between 
nature's  crude  products  and  man's  finished  products. 

It  is  the  labor  of  man  which  transforms  or  removes  the 
elementary  but  otherwise  useless  creations  of  nature  by  mak- 
ing these  fit  for  ready  use. 

Labor  is  the  creative  cause  which  applied  to  nature's 
creations  produces  the  desired  results — the  fruits  of  both 
(labor  combined  with  material)  for  human  use. 

Universal  experience  teaches  us  that  a  cause  is  of  greater 
moment  than  its  result.  Every  result  is  in  its  entirety  merely 
the  end,  the  answer,  the  harvest  of  a  working  cause.  The 
cause  of  everything  determines  the  result  or  effect.  Every 
cause  in  action  operates  as  a  ''creator"  whereas  the  effect  is 
the  mere  mathematical  and  mechanical  result. 

By  employing  a  cause  we  bring  forth  results. 

By  controlling  a  cause  we  direct  the  accomplishment 

of  a  definite  result. 
By  removing  a  cause  we  avert  an  undesirable  or  bad  result. 

Knowledge  relating  to  a  "cause"  is  therefore  most  essen- 
tial— in  fact  an  indispensable  factor  for  progress. 

Labor  as  a  cause  is  the  most  productive  means  of  "all 
means,"  for  it  is  this  which  distinguishes  us  from  our  ancient 
cave  men. 

Money  as  a  cause  is  the  most  distributive  means  of  "all 
means"  for  it  classifies  its  people  into  princes  and  paupers. 


8  CONSTBUCTIVE   ECONOMICS — 2ND   SUPPLEMENT 

Even  as  labor  as  a  means  requires  the  best  of  special 
material  in  order  to  bring  forth  the  best  of  special  products 
— so  money,  being  the  highest  of  all  means  in  relation  to  dis- 
tribution, should  be  based  upon  national  labor. 

Whenever  this  law  of  the  "highest  grade"  so  universally 
applied  to  all  products,  will  be  applied  also  to  money,  then 
the  results  will  be  astonishing  in  its  production  of  national 
health,  national  wealth  and  national  happiness. 

Money  as  a  finished  product  of  man  should,  like  all  other 
means  in  order  to  be  right,  be  also  based  upon  two  other 
means. 

The  present  national  mediums  of  exchange  so  far  as  these 
relate  to  paper,  ink  and  printing  answer  admirably  the  re- 
quirements of  a  circulating  medium,  but  their  "standard" 
(value  and  debt)  has  not  yet  been  raised  to  the  lofty  heights 
and  dignity  to  which  money  of  the  highest  type  is  entitled. 
We  still  consider  inert  inorganic  gold,  a  finished  product, 
more  valuable  than  the  eternal  labor  of  man  in  constant  co- 
operation with  nature,  without  which  present  humanity  would 
not  be  able  to  live. 

National  welfare  in  its  supremacy,  always  overshadows 
individual  welfare  so  that  labor  performed  for  individuals 
could  not  be  used  as  a  standard  of  value  for  money,  even  as 
a  national  medium  of  exchange,  could  not  again  be  made  by 
individuals.  Some  day  there  will  be  philosophers  wise  enough 
to  understand  the  necessary  error  committed  against  the 
people  of  a  nation  by  the  use  of  "made  to  order"  money 
(checks)  which  are  used  as  a  medium  of  exchange  in  com- 
petition with  national  mediums.  In  other  words,  whereas  it 
should  be  the  exclusive  function  of  the  government  to  furnish 
all  necessary  mediums  of  exchange,  yet  most  of  the  people 
make  their  own  mediums  of  exchange  whenever  they  draw 
their  checks  against  banks,  and  with  these  discharge  all  their 
obligations. 

REDEMPTION  OF  FIAT  MONEY  CONSIDERED. 

The  following  is  an  answer  to  the  views  of  those  who 
claim  that  a  national  medium  of  exchange  put  into  circula- 
tion should  not  be  based  on  a  standard  of  value,  but  should 
be  based  on  a  non-interest  bearing  standard  of  debt,  and  be 
considered  a  liability  of  the  government  or  nation. 

It  is  contended  by  these  philosophers  on  the  money  ques- 
tion, that  a  return  of  such  mediums  to  the  government  as  by 
a  payment  of  taxes,  debts  or  other  obligations,  would  consti- 
tute a  "redemption." 

Evidently  these  particular  philosophers  have  never  pic- 
tured a  condition  under  national  ownership  wherein  and  where- 
by "taxes,  debts  or  financial  obligations  other  than  wages, 


Redemption  of  Fiat  Money 


would  be  an  impossibility."  They  have  not  yet  appreciated 
that  taxes,  debts  and  profits,  as  well  as  all  artificial  burdens 
are  'TENALTIES"  which  are  imposed,  exacted  and  neces- 
sary as  a  payment  for  our  ignorance  in  not  having  worked  out 
a  system  of  Political  "Economy"  from  our  system  of  Political 
''Extravagance."  According  to  this  theory,  no  nation  would 
ever  get  out  of  debt. 

A  national  medium  of  exchange  cannot  be  considered  as 
redeemed  simply  because  the  same  is  returned  to  the  govern- 
ment. The  bare  act  of  returning  cannot  be  construed  as  a  re- 
demption. 

Redemption  is  an  independent  feature  injected  into  a  na- 
tional medium  of  exchange,  such  as  in  the  gold  and  silver 
certificates ;  and  unless  specificallly  embodied  in  a  medium  of 
exchange  it  (redemption)  must  be  entirely  eliminated  from 
all  consideration  at  all  times  no  matter  when,  how  or  where 
the  circulation  of  such  medium  begins  or  ends. 

A  gold  or  silver  certificate  is  by  no  means  redeemed, 
simply  because  such  is  returned  to  the  government  in  payment 
of  taxes,  debts  or  other  obligations. 

A  redemption  requires  the  performance  of  the  obligation 
contained  in  the  certificate ;  so  that  any  circulation  even  though 
ending  by  a  return  thereof  to  the  government,  in  no  manner 
complies  with  or  satisfies  the  requirements  of  redemption. 

To  effect  a  redemption  requires  the  removal  of  coin  from 
the  U.  S.  Treasury,  and  the  cancellation  or  destruction  of  such 
certificate. 

The  government  therefore  redeems  nothing,  nor  does  it 
agree  to  redeem  anything  unless  it  has  specifically  agreed  to 
do  so  in  the  medium  of  exchange. 

Any  national  medium  of  exchange  which  the  government 
receives  for  taxes  due,  etc.,  constitutes  merely  an  exchange 
of  an  obligation  for  a  "means"  issued  and  used  by  the  gov- 
ernment for  that  and  other  national  purposes.  Such  a  return 
to  the  government  cannot  be  considered  a  redemption  of  such 
medium  of  exchange,  but  is  merely  an  act  of  exchanging  a 
medium  of  exchange  for  a  tax,  debt  or  other  obligation. 

It  is  the  government's  duty  to  furnish  national  mediums 
of  exchange,  and  this  medium  of  exchange  should  operate 
merely  as  a  "means"  of  enabling  the  public  as  well  as  the 
government  to  effect  exchanges  anywhere  of  everything  with- 
in the  nation ;  and  these,  as  all  other  means,  should  in  the 
realm  of  finance  be  likewise  based  on  something  of  inherent 
value  and  not  a  debt — not  a  minus  quantity,  not  on  some- 
thing which  is  less  than  nothing. 

Even  in  common  parlance  a  note  is  not  redeemed  when 
paid,  but  cancelled  and  returned.  Only  the  property  pledged 
or  mortgaged  to  secure  such  note  is  subject  to  redemption. 


10  OONSTBUCTITB    ECONOMICS — 2ND   SUPPLEMENT 

Payment  of  a  note  constitutes  a  cause;  it  comes  first; 
redemption  of  property  comes  next  or  follows  as  a  result  or 
effect  of  such  payment.  A  "cause"  is  by  no  means  the  same 
as  its  "effect." 

Redemption  always  relates  to  property  having  or  possess- 
ing inherent  value;  no  payment — no  redemption. 

The  most  that  can  be  said  in  answer  to  the  contending 
philosopher  is  that  his  medium  of  exchange  would  be  nothing 
other  than  a  first-class  Fiat  money;  and  that  his  claim  of 
liability  and  redemption  arises  purely  in  his  own  mind  from 
his  misunderstanding  of  the  functions  of  money,  and  his  im- 
proper use  and  application  of  the  term  redemption. 

The  liability  of  the  government  for  services  rendered  by 
an  employee  for  periods  between  the  payments  of  wages, 
establishes  the  relationship  of  debtor  and  creditor  wherein  the 
gfovernment  is  the  debtor  and  the  employee  is  the  creditor. 

Governments  have  always  discharged  their  debts  to  their 
employees  in  that  kind  of  money  which  was  then  in  use. 
Gold  has  always  been  considered  the  best  kind  of  money ;  and 
it  was  only  due  to  its  great  scarcity  that  Circulating  Notes 
(promises  to  pay)  were  forced  upon  the  public  for  their  use. 

Here  we  have  two  elements  for  our  consideration,  namely, 
the  one  which  relates  to  the  government's  debt — the  other 
which  relates  to  the  government's  duty  to  furnish  the  best 
kind  of  money  possible  wherewith  to  pay  this  debt. 

For  many  years  individuals  have  waived  among  them- 
selves the  character  of  money  in  use  wherewith  to  pay  debts, 
but  the  same  individuals  have  never  for  a  single  instance 
waived  a  single  debt,  on  the  contrary  these  have  insisted 
each  time  upon  its  payment  no  matter  how  inferior  or  how 
bad  the  character  of  the  money  in  use  might  have  been.  The 
very  worst  kind  of  money  has  always  been  considered  good 
enough  by  the  public  to  give  or  receive  such  in  pavment  of  a 
debt. 

The  debt  whether  of  the  government,  or  whether  exist- 
ing among  individuals  of  the  nation,  such  debt  always  attaches 
to  some  person,  but  the  means  (medium  of  exchange)  used 
to  discharge  such  debt  embraces  something  inorganic. 

The  debt  or  liability  of  the  government  or  of  an  individual 
is  one  thing,  it  relates  to  a  person,  whereas  the  means  used 
to  discharge  such  debt  or  liability  is  another  thing,  it  relates 
to  inorganic  matter  f medium  of  exchange). 

There  is,  therefore,  a  vast  difference  between  a  debt  and 
a  medium  of  exchange.  The  debt  is  the  result,  the  end,  or  the 
effect  which  arises  out  of  a  certain  contractual  agreement. 

A  medium  of  exchange  is  a  means  which  arises  out  of 
legislative  enactments  to  be  used  for  the  satisfaction  of  debts. 

To  say  that  a  "medium  of  exchange"  which  is  used  as  a 
means,  should  be  considered  as  or  based  upon  the  debt  of 


Redemption  of  Fiat  Money  11 

the  nation,  is  to  offer  for  violation  all  natural  laws  relating 
to  ''means."  Every  known  material  means  is  based  upon 
something  of  value  and  in  existence,  something  concrete^ — 
and  not  upon  a  promise  of  something,  upon  a  debt,  upon 
something  abstract. 

Surely  gold  and  silver  coins  are  vastly  more  valuable  as 
a  medium  of  exchange  than  debts.  Gold  and  silver  coins  con- 
stitute an  asset  of  the  nation — debts  are  obligations  to  be  dis- 
charged.   A  debt  or  obligation  cannot  discharge  itself. 

In  further  illustration  and  in  conclusion  it  might  be  said 
that  from  the  time  an  infant  opens  his  eyes  to  behold  the 
world,  he  receives  food,  shelter,  clothing,  and  for  a  long  time 
constant  care  and  attention. 

Later  he  receives,  in  addition  to  the  above,  a  goodly 
amount  of  training  and  education,  at  the  same  time  receiving 
and  enjoying  the  inestimable  benefits  and  comforts  to  be  de- 
rived from  all  achievements  operating  in  our  social,  political 
and  industrial  activities. 

The  infant  receives  his  physical  and  intellectual  develop- 
ment from  both  his  home  and  more  largely  from  society  for 
no  other  purpose  than  to  qualify  him  at  a  later  and  proper 
time  to  enter  actively  upon  the  duties  of  life  and  assume 
those  responsibilities  which  the  progress  of  society  demands 
from  every  qualified  individual. 

If,  therefore,  a  young  man,  who  has  become  duly  ana 
truly  prepared  and  is  worthy  and  well  qualified,  renders  a 
day's  labor  for  the  government  (nation),  he  is  simply  dis- 
charging his  moral  obligation  toward  society. 

The  government  should  not  furnish  him  with  a  medium  of 
exchange  which  is  based  upon  the  indebtedness  of  the  nation  for 
his  services,  but  a  medium  of  exchange  (Labor  Certificates)  based 
upon  his  own  labor,  the  product  whereof  constitutes  an  exclusive 
asset  of  the  nation,  free  of  all  national  liens  and  incumbrances, 
free  from  all  national  taxes,  free  from  all  national  debts  or  demands. 

Most  states  give  mechanics,  laborers  and  material  men~a 
lien  upon  the  building  erected,  as  security  for  any  non-pay- 
ment of  labor  performed  and  material  furnished — thereby 
placing  a  higher  natural  value  upon  labor  and  material,  than 
upon  the  mere  abstract  liability  or  debt  of  the  owner  of  such 
building. 

In  like  manner,  if  the  government  were  to  construct 
buildings,  waterways,  or  make  other  needful  national  im- 
provements, it  would  be  infinitely  more  logical  to  have  its 
money  based  upon  their  creators  (labor)  which  brings  forth 
visible  assets,  than  to  have  such  money  based  upon  the  liabil- 
ity of  the  government  or  nation. 

The  government,  as  the  agent  of  the  debtor  nation,  is 
expected  to  furnish  only  the  "means*'  of  exchange,  and  such 


12  Constructive  Economics — 2nd  Supplement 

as  at  present  may  logically  and  rightfully  be  based  on  a 
standard  of  debt  whenever  there  is  not  sufficient  gold  avail- 
able for  the  purpose  of  satisfying  that  false  standard  of  value, 
until  the  government  at  a  later  time  embraces  a  true  standard 
of  value  (labor  and  wages  thereof)  which  will  be  more  than 
ample  to  fill  and  satisfy  all  requirements  of  a  money  of  the 
highest  type. 

Surely  the  best  can  be  none  too  good  for  us  even  though 
the  inestimable  value  of  Labor  Certificates  may  not  be  ap- 
preciated or  recognized  at  an  early  date.  Necessity  and  sad 
experiences  will  be  the  price  demanded  to  drive  us  to  their  use. 

I  might  add  here  that  the  young  man  who  throughout 
his  life  continually  receives  from  either  his  parents  or  more 
largely  from  society  (cutting  interest  coupons)  is  a  parasite 
who  when  he  dies  leaves  the  world  in  infamous  shame  and 
disgrace  as  an  unliquidated  moral  debtor  to  society;  and  for 
this  reason  he  has  been  called  the  compliment  of  the  tramp, 
because  neither  pay  their  moral  obligations  and  debts  to  so- 
ciety. 

Neither  contribute  a  single  thing  or  activity  either  for 
the  maintenance  or  toward  the  progress  of  society — these  live 
exclusively  for  themselves  at  the  expense  and  to  the  detri- 
ment of  society. 

The  history  of  the  world  has  never  perpetuated  the  name 
of  a  coupon  cutter  or  a  roaming  tramp ;  both  are  dead  to  all 
the  world  at  all  times ;  both  live  entirely  for  themselves,  there- 
fore these  after  their  death  leave  no  one  to  mourn  except 
those  few  if  any  related  by  consanguinity. 

MORAL. 

Every  man  owes  a  living  (his  labor)  to  society, 
and  he  should  ever  have  the  opportunity  of  paying 
this  moral  debt.  If  he  does  this  or  is  unable  or 
denied  the  opportunity,  then  SOCIETY  OWES  HIM, 
and  in  case  of  his  death  then  to  his  dependents,  A 
LIVING. 

If  he  does  not  pay  this  moral  debt,  although  able 
if  he  would,  then  SOCIETY  OWES  HIM  NOTH- 
ING, and  he  thereupon  continuously  robs  society  of 
that  which  he  has  not  earned. 

From  all  that  has  been  said  upon  the  subject  of  money  it 
must  be  apparent  that  money  must  be  based  upon  something 
possessing  inherent  value,  and  in  addition  thereto  such  value 
must  possess  the  qualifications  of  meeting  the  requirements 
exacted  from  every  standard ;  while  the  duties  of  a  standard 
relate  to  its  ability  of  serving  as  a  unit  for  measuring  and  de- 
termining exchange  values  of  commodities.  A  medium  of 
exchange  can  best  be  based  upon  a  standard  of  value  which 
possesses  the  above  mentioned  measuring  properties  and 
qualities. 


Summary — Means  13 


SUMMARY  AS  TO  MEANS. 

1.  That  every  material  means  must  be  composed  of  or 
based  upon  something  of  inherent  value. 

2.  That  every  material  means  is  the  product  of  two 
other  means,  namely,  labor  (intellectual  and  physi- 
cal) and  material  combined. 

3.  That  money  by  its  very  function  and  nature  occu- 
pies the  highest  station  in  the  realm  of  means  be- 
cause of  its  widest  universality  and  greatest  adapt- 
ability. 

4.  That  the  highest  means  requires  and  demands  for 
its  foundation  and  basis,  something  of  the  highest 
value  known  to  man. 

5.  That  labor  in  all  its  phases  acting  as  a  creator  and 
working  with  nature's  creations  brings  forth  every- 
thing which  supplies  man  with  all  needs  and  wants; 
and  such  labor  is  therefore  of  the  highest  value 
among  all  known  means. 

6.  That  any  money,  a  physical  means  for  effecting 
exchanges,  whether  based  upon  a  liability  of  the 
nation  or  the  fiat  of  the  nation,  such  money  con- 
stitutes a  gross  violation  of  all  natural  laws  in  re- 
lation to  every  other  physical  or  material  means, 
and  constitutes  also  a  violation  of  all  such  human 
laws  where  bona  fide  certificates  of  whatever 
character  are  issued  and  used. 

7.  That  money  based  upon  labor  and  the  wages  of 
labor  can  be  the  only  money  which  possesses  the 
power  of  measuring  exchange  values,  hence  be 
the  only  money  based  upon  a  true  operative  stand- 
ard of  value. 

N.  B.: — Only  the  government  could  issue  this  kind  of  money  based  upon  labor 
and  its  wages. 


14  CoNSTBucnvE  Economics — 2nd  Supplement 


PART  11. 


MORALS  AS  TO  PRODUCTION  AND  DISTRIBUTION. 

1.  That  it  is  labor  (the  most  important  of  all  "means") 
which  produces  all  commodities. 

2.  That  it  is  labor  (the  most  important  of  all  "mezms") 
which  transports  all  commodities. 

3.  That  it  is  labor  (the  most  important  of  all  "means") 
which  distributes  all  commodities. 

LANGUAGE  OF  WEIGHTS  AND  MEASURES. 

The  language  of  weights  and  measures  requires  the  use 
of  numbers  or  figures  of  mathematics. 

This  language. requires  also  a  theoretical  or  abstract  unit 
such  as  the  pound,  the  pint,  the  peck,  the  foot,  the  yard,  the 
ton,  etc. 

If  these  theoretical  or  abstract  units  were  permitted  to 
be  used  by  the  public  in  accordance  with  their  own  interpreta- 
tion, or  as  might  be  said,  used  and  placed  upon  standards 
of  their  own  selection — then  we  would  have  the  same  results 
with  reference  to  weights  and  measures  as  we  have  in  ex- 
change values. 

Each  retailer  would  be  the  judge  of  how  much  constituted 
a  pound,  pint,  peck,  foot,  yard,  or  ton.  In  such  case  the 
pound,  pint,  peck,  foot,  yard,  or  ton  would  fluctuate,  slip, 
slide,  and  be  as  uncertain  in  quantity  as  the  theoretical  dollar. 

The  fact  that  all  theoretical  units  in  the  language  of 
weights  and  measures  have  been  by  governmental  regulation 
nailed  down,  fastened  definitely  and  fixed  permanently  upon 
physical  instruments,  deprives  every  individual  of  the  right 
to  tamper,  interfere,  or  in  any  manner  meddle  with  the  stand- 
ards of  weights  and  measures. 

In  the  field  of  standards  all  theoretical  units  have  been 
captured  and  are  controlled  by  the  government  except  the 
theoretical  dollar  which  is  still  roaming  around  at  large  until 
some  day  the  government  officials  will  awaken  to  the  fact 
that  such  dollar,  like  all  other  theoretical  units  will  have  to  be 
captured  and  controlled  by  them.  With  reference  to  weights 
and  measurements  we  have  universal  harmony;  with  refer- 
ence to  exchange  values  we  have  competitive  chaos  and  dis- 
cord. 

THE  LANGUAGE  OF  MONEY. 

Exchange  values  require  a  language — a  money-language. 
This  money-language  is  composed  of  four  factors. 

1.  The  use  of  numbers  or  figures  of  mathematics. 

2.  The  use  of  a  money  "unit"  called  the  dollar. 

3.  The   use   of   a   "standard"   for   that    dollar   which 


Standards  15 


standard  should  be  capable  of  performing  the  func- 
tions of  measuring  values. 
4.  The  use  of  an  instrument  (medium  of  exchange) 
representing  multiples  or  fractions  of  the  dollar, 
expressing  or  representing  measurements  per- 
formed by  the  standard  of  value. 

STANDARDS  OF  MEASUREMENTS. 

There  are  two  kinds  of  standards,  namely,  standards 
which  measure  objects,  or  matter  relatively  at  rest  with  refer- 
ence to  the  earth's  motion,  and  other  standards  which  measure 
the  changing  effects  of  objects,  or  matter,  or  force,  while  in  a 
variable  motion  with  reference  to  the  earth. 

To  the  first  mentioned  standards  belong  the  footrule,  pint 
measure,  pound  weight,  etc.,  etc.,  which  are  applied  to  objects 
or  matter  relatively  at  rest  at  the  time  a  particular  standard 
is  applied. 

To  the  other  standards  belong  the  thermometers,  barome- 
ters, speedometers,  clocks,  meters  of  all  kinds,  etc.,  etc.,  which 
are  each  applied  to  objects,  or  matter,  or  forces,  while  these 
are  each  in  a  variable  motion  with  respect  to  the  earth. 

It  is  apparent  that  a  standard  such  as  the  footrule  can- 
not be  used  or  applied  to  objects,  matter  or  forces  in  motion, 
and  vice  versa. 

All  objects  or  matter  to  be  measured  when  at  rest  re- 
quire instruments  which  in  their  measuring  powers  are  fixed 
and  remain  fixed. 

All  objects,  matter  or  forces  in  motion  cannot  be  measured 
by  instruments  which  are  fixed  in  their  measuring  powers, 
but  such  require  other  instruments  which  are  themselves 
capable  of  assuming  motions  running  parallel;  so  that  with 
reference  to  these  parallel  motions  these  instruments  of -meas- 
urements may  be  said  to  be  at  equilibrium  with  the  objects, 
matter  or  forces  to  be  measured.  The  measurements  produced 
record  the  variations  upon  a  fixed  surface,  dial  or  face. 

The  period  of  production  of  a  commodity  may  be  consid- 
ered the  period  of  its  development,  the  period  of  its  growth 
from  raw  material  to  its  finished  product;  it  is  raw  material 
put  into  evolution,  into  motion  by  means  of  "labor." 

The  time  and  extent  of  the  development  and  growth  of 
a  finished  commodity  from  its  raw  material  depends  exclu- 
sively upon  labor. 

Labor  and  its  time  are  the  prime  factors  in  producing  a 
finished  product.  Labor  and  time  run  parallel  with  the  growth 
or  degree  of  progress  made  between  raw  material  and  the 
finished  product. 

Labor  is  the  cause — the  finished  product  constitutes  the 
result  or  effect.  The  natural  value  as  well  as  the  money-value 
of  an  article  is  constantly  being  increased  by  labor  and  its 


16  Constructive  Economics— 2nd  Supplement 

wages  during  the  process  of  its  manufacture  from  raw  material 
to  its  finished  condition. 

It  must  be  evident  from  the  foregoing  statement  of  facts 
that  a  standard  of  value  whose  function  it  should  be  to  meas- 
ure the  exchange  value  of  a  commodity,  cannot  be  based  upon 
anything  which  is  relatively  at  rest  with  reference  to  the  earth, 
when  as  a  matter  of  fact  the  process  of  manufacturing  is  op- 
posed to  all  rest,  for  such  manufacturing  requires  work;  and 
work  embraces  motion  of  man  and  material. 

A  standard  belonging  to  the  class  of  the  footrule,  pint 
measure  or  pound  weight  etc.,  or  any  commodity,  substance 
or  matter,  such  as  gold,  etc.,  relatively  at  rest,  could  not  there- 
fore serve  as  a  standard  of  value. 

A  standard  of  value  which  is  to  serve  as  an  instrument 
for  measuring  exchange  values  must,  therefore,  belong  to 
the  class  of  standards  which  are  in  relative  motion  running 
parallel  with  the  thing  to  be  measured. 

A  standard  of  value  belongs  in  the  class  of  thermometers, 
barometers,  speedometers,  clocks,  meters  of  all  kinds,  etc.,  etc. 

Labor  and  its  wages  are  the  only  factors  in  existence 
which  run  parallel  with  the  period  of  production. 

Nothing  would,  therefore,  be  in  greater  harmony  and  ac- 
cord with  reference  to  measuring  money-values  than  to  take 
the  wages  of  labor  expended  during  production.  The  follow- 
ing topics  will  consider  money  and  its  proposed  standard  from 
various  views  and  angles. 

POWERS  AND  PROPERTIES  OF  MONEY. 

Money  of  today  does  not  measure  exchange  values  of 
commodities,  neither  did  any  money  of  the  past  ever  perform 
such  a  service.  The  term  money  as  used  here  and  elsewhere 
in  this  work  always  embraces  its  two  elements,  namely,  the 
medium  of  exchange  and  the  standard  of  value.  The  reason 
that  money  never  performed  measuring  functions  is  due  wholly 
to  the  fact  that  its  standard  of  value  has  never  rested  or  been 
based  upon  anything  possessing  measuring  powers  or  proper- 
ties. The  measuring  functions  of  money  belong  exclusively 
to  its  standard  of  value ;  whereas  its  medium  of  exchange  can 
serve  only  as  expressions  of  measurements,  or  in  other  words, 
be  merely  representative  of  measurements.  It  is,  therefore, 
immaterial  whether  a  medium  of  exchange  is  composed  of 
paper  or  metal  or  any  other  material;  such  medium  acquires 
no  measuring  powers  by  reason  of  any  special  substance  out 
of  which  it  might  be  made.  The  function  of  a  medium  of 
exchange  is  not  altered  when  a  gold  or  silver  certificate  based 
upon  the  coins  in  the  U.  S.  Treasury  is  redeemed  and  the  coins 
assume  the  function  of  circulating  as  a  medium  of  exchange. 

Whether  the  coins  are  in  the  U.  S.  Treasury,  or  whether 


I'OWERS    AND    PrOPEBTIES    OF   MONEY  17 

such  coins  are  in  circulation,  in  neither  instance  do  they  pos- 
sess measuring  powers. 

There  is  a  vast  difference  between  instruments  which 
"measure"  and  other  instruments  which  serve  merely  to  "ex- 
press or  represent"  measurements. 

The  foregoing  statement  is  of  the  greatest  importance 
because  it  is  a  most  "fundamental  law."  Failure  to  fully  under- 
stand this  fundamental  law  precludes  the  knowledge  of  the 
fact  that  all  mediums  of  exchange  are  incapable  of  measur- 
ing the  money-value  of  anything,  but  merely  serve  the  pur- 
poses of  enabling  exchanges,  whereof  the  things,  objects  or, 
material  exchanged  were  measured  by  the  vendor  in  terms  of 
money  by  the  use  of  instruments,  other  than  gold  or  silver. 

The  medium  of  exchange  takes  no  part  in  these  measure- 
ments, and  neither  does  the  gold  which  today  is  looked  upon 
as  the  standard  of  value  for  our  money. 

Suppose  a  lumber  retailer  informs  us  that  a  certain  board 
12  inches  wide  sells  at  5c  per  running  foot;  in  order  to  arrive 
at  the  exchange  value  of  that  board  it  would  be  necessary  to 
measure  its  length.  For  each  foot  measured  let  us  set  aside  a 
celluloid  chip,  so  that  when  the  measurements  have  been 
completed  we  find  that  we  have  set  aside  12  chips.  These 
chips  serve  merely  the  purpose  of  expressing  or  representing 
measurements,  both  as  to  length  and  money-value. 

The  chips  do  not  perform  the  functions  of  measuring — 
that  duty  devolves  upon  the  footrule  whenever  the  dealer  has 
established  the  selling  price  of  the  unit  (foot). 

If  the  chips  made  of  celluloid  are  not  able  to  measure 
the  length  and  the  exchange  value  of  the  board,  neither  can 
chips  made  of  lead,  copper,  silver,  gold,  or  any  other  metal  or 
substance  do  otherwise. 

Instead  of  using  chips  to  represent  measurements  we  do 
in  fact  use  pencil  marks  upon  figuring  pads  because  of  their 
greater  convenience. 

The  pencil  marks  likewise  merely  represent  or  express 
measurements. 

If  we  had  metal  chips  of  different  denominations  and 
value  such  as  Ic,  2c,  5c,  10c,  etc.,  etc.,  up  to  S5.(X),  and  we 
had  set  aside  chips  each  of  the  value  of  5c,  then  each  chip 
in  that  case  would  have  equalled  the  selling  price  of  the  board 
per  foot,  but  such  chips  would  still  have  been  merely  expres- 
sions of  measurements ;  and  in  no  instance  could  measuring 
powers  or  properties  have  been  accorded  to  these  chips. 

The  inherent  value  of  the  chips  like  the  pencil  marks  are 
not  taken  into  consideration  because  their  functions  are  en- 
tirely and  exclusively  of  a  representative  character,  so  that 
chips  ranging  from  little  or  no  value  up  to  and  exceeding 
$5.00  would  in  no  way  partake  of  measuring  functions. 


18  Constructive  Economics — 2nd  Supplement 

The  dealer  himself  had  set  the  selling  price  of  the  board 
at  5c  per  running  foot.  He  established  the  selling  price  for 
the  "unit"  (foot)  of  lumber,  and  then  he  used  the  footrule 
to  determine  the  number  of  units  in  that  board ;  so  that  when 
the  measurements  had  been  completed  he  had  not  only  ascer- 
tained the  length,  but  also  the  selling  value  of  the  board. 

The  dealer  in  establishing  the  exchange  value  for  the  unit 
of  lumber  employs  many  instruments  of  which  the  following 
are  the  most  usual  and  important.  Each  of  these  instruments 
measures  its  quota  which  is  to  be  represented  in  the  exchange 
value  of  the  unit  just  as  the  footrule  has  its  proper  use  and 
service.  The  cost  price  forms  the  foundation  upon  which  the 
dealer  begins  to  construct  or  build  up  his  selling  price  per 
unit.  With  this  cost  price  as  his  foundation  he  uses  the  fol- 
lowing named  instruments  in  terms  of  money : 

Interest  on  the  investment  of  capital 

Freight 

Drayage 

Rent 

Labor 

Insurance 

Taxes 

Interest  on  debts 

Office  expense 

Advertising 

Salesmen  and  solicitors 

Light,  heat  and  power 

Operating  expenses,  teams  trucks 

Repairs 

Depreciation  of  buildings,  etc. 

Profit 

The  foregoing  and  in  some  instances  many  more  factors 
enter  into  the  computation  of  exchange  values.  The  forego- 
ing are  instruments  which  the  dealer  uses  to  measure  in  terms 
of  money  the  exchange  value  of  his  lumber  per  unit.  It  is 
not  the  money  which  we  have  in  use  which  measures,  but  the 
aforementioned  instruments  expressed  in  the  language  of 
money  which  do  the  measuring.  The  medium  of  exchange 
and  its  assumed  standard  of  value  (gold),  given  in  exchange 
for  something  else,  are  nothing  other  than  mere  numerical 
equivalents  covering  sums  of  money  whereof  the  amounts 
are  determined  by  instruments  other  than  gold  or  silver. 
Every  one  of  the  foregoing  instruments  becomes  each  a  stand- 
ard of  value  in  the  hands  of  the  vendor.  These  are  the  eco- 
nomic standards  which  are  actually  at  work,  while  the  stand- 
ard of  value  adopted  by  the  government,  is  unable  to  perform 
a  single  measuring  function. 

There  is  an  irreconcilable  breach  between  the  statements 
of  economists  about  the  functions  of  money,  and  the  actual 
practice  of  money  found  in  operation  in  the  economic  field  of 


Artificial  and  Natural  Burdens  19 

society.  The  economist  proclaims  that  money  measures 
vakies  by  virtue  of  its  standard  of  value  (gold),  but  the  vend- 
ors measure  values  by  dozens  of  standards  none  of  which  re- 
late to  gold. 

The  fact  that  money  is  not  based  upon  a  standard  of 
value  which  possesses  measuring  powers  or  qualities  is  the 
very  reason  that  there  are  in  actual  use  a  great  many  and 
variety  of  standards  each  rendering  its  share  of  service  in  the 
computation  of  selling  prices.  Every  standard  so  used  con- 
stitutes a  burden.  For  the  sake  of  simplicity  we  may  consider 
burdens  to  be  composed  of  two  kinds :  One  which  in  this 
work  is  called  a  "natural"  burden,  while  the  other  is  named 
"artificial"  burden. 

All  kinds  of  labor,  whether  intellectual  or  physical,  is 
classed  as  a  natural  burden,  whereas  all  other  instruments 
fall  within  the  class  of  artificial  burdens. 

For  the  sake  of  simplicity  we  may  place  all  artificial 
burdens  under  three  headings,  namely :  Int.  on  Capital  (in- 
vestment), Overhead  expenses,  and  Profit. 

In  order  that  some  practical  view  may  be  obtained  from 
the  real  economics  at  work  within  our  nation,  the  following 
Tables  are  presented  showing  the  various  factors  which  enter 
into  computation  of  exchange  values;  and  these  will  each  be 
reclassified  so  as  to  bring  them  within  the  two  burdens  of 
natural  and  artificial. 

For  many  years  the  steel  industry  has  been  looked  upon 
as  the  financial  barometer  for  all  commodities,  so  that  in  this 
selection  we  behold  a  most  important  industry.  The  Tables 
presented  for  study  were  compiled  by  the  commission  of  cor- 
porations, and  cover  a  period  of  five  years  from  1902  to  1906; 
and  were  published  May  6,  1913.  These  Tables  cover  a  period 
of  time  which  may  be  looked  upon  as  being  industrially 
normal,  so  that  they  form  a  better  guide  than  such  as  might 
be  compiled  covering  the  present  most  unusual  economic  con- 
ditions. 

Table  No.  3  relates  to  book  cost  of  Lake  Ore 
Table  No.  18  relates  to  book  cost  of  Bessemer  Pig  Iron 
Table  No.  29  relates  to  book  cost  of  B.  B.  Ingots 
Table  No.  40  relates  to  book  cost  of  L.  B.  Billets 
Table  No.  67  relates  to  book  cost  of  Structural  Shapes 

Report  of  Commissioner  of  Corporations  on  the  Steel  In- 
dustry, Part  3,  Cost  of  Production.  Published  May  6,  1913. 
Page  34,  Table  3 — Average  Book  Cost  of  Lake  Ore  Delivered 
at  Lower  Lake  Ports  1902-1906  in  Dollars  per  Gross  Ton : 


20  CONSTBUCTIVE   ECONOMICS — 2ND    SUPPLEMENT 


Average  5  years 

LABOE   $0.45 

Supplies 17 

Repairs    02 

Expense   03 

Depreciation  and  stripping 15 

Royalty J'B 

EaU  freight    /7 

Lake  freight 74 

General  expense 06 

Taxes    05 

Depreciation 05 

PEOFIT   (page  53,  Table  10) 66 

Sale  price  (page  53,  Table  10) $3.30 

A  reclassification  of  the  foregoing  items  to  suit  the  pur- 
poses of  this  work  is  given  as  follows : 

Int.  on  Capital  (royalty,  etc.) $0.40 

Overhead  expense  1.79 

Profits 66 

Labor  . 45 

Burdens  imposed  on  ore $3.30 

Page  86,  Table  18 — Average  Book  Cost  of  Bessemer  Pig 
Iron  1902-1906  in  Dollars  per  Gross  Ton : 

Average  5  years 

Net    metaUic   mixture $7.30 

Coke $3.89 

Limestone    43 

LABOE    77 

Steam .12 

Materials  in  repair  and  maintenance 16 

Supplies  and  tools 13 

Miscellaneous  and  general  works  expense 26 

Belining   and   renewals 18 

Contingent  fund 02 

General  and  misceUaneous 86 

Depreciation 39 

PEOFIT   (page  125,  Table  27) 86  7.57 

Sale  price  (Table  27) $14.87 

A  reclassification  of  the  above  items  to  suit  the  purposes 
of  this  work  is  given  as  follows: 

Int.  on  Capital $0.39 

Overhead  expense 5.55 

Profits 86 

Labor 17 

Burdens  imposed  on  pig  iron $7.57 

Page  136,  Table  29 — Average  Book  Cost  of  Bessemer  Bil- 
let Ingots,  1902  to  1906,  in  Dollars  per  Gross  Ton : 

Average  6  years 

Pig  iron  and  scrap $14,88 

Manganese $0.31 

Limestone    02 

LABOE    57 

Fuel    24 

Steam 15 

Molds  and  tools 16 

Materials  in  repairs  and  maintenance 09 

Supplies  and  tools 10 

Miscellaneous  and  general  works  expense IS 

Gteneral  and  miscellaneous  expense 46 

Depreciation    46 

PEOFIT    (Table  39) 84         3.52 

Sale  Price $18.40 


Report  on  Steel  Industry  21 

A  reclassification  of  the  foregoing  items  to  suit  the  pur- 
poses of  this  work  is  given  as  follows : 

Int.  on  Capital .$0.46 

Overhead  expense  1.65 

Profit 84 

Labor 57 

Burdens  imposed  on  B.  B.  Ing $3.52    . 

Page  180,  Table  40 — Average  Book  Cost  of  Large  Besse- 
mer Billets,  1902  to  1906,  in  Dollars  per  Gross  Ton: 

Average  5  years 

Ingots     $17.72 

LABOR    $0.55 

Fuel    10 

Steam    32 

EoUs    03 

Materials  in  repairs  and  maintenance 17 

Supplies  and  tools 06 

Miscellaneous  and  general  works  expense 14 

General  and  miscellaneous  expense 55 

Depreciation    54 

PEOFIT    (Table  40) 1.77         4.23 

Sale  price  L.  B.  Billets $21.95 

A  reclassification  of  the  foregoing  items  to  suit  the  pur- 
poses of  this  work  is  given  as  follows : 

Int.  on  Capital $0.54 

Overhead  expense  1.37 

Profit 1.77 

Labor 55 

Burdens  imposed  on  L.  B.  Bill $4.23 

Page  227,  Table  67 — Average  Book  Cost  of  Structural 
Shapes  from  Large  Billets,  1902  to  1906,  in  Dollars  per  Gross 
Ton : 

Average  5  years 

Large  Billets    $21.88 

LABOR $2.54 

Fuel 81 

Steam    42 

Rolls    32 

Materials  in  repairs  and  maintenance 44 

Supplies  and  tools 18 

Miscellaneous  and  general  works  expense 44 

General  and  miscellaneous  expense 63 

Depreciation    60 

PROFIT    (Table  68) 7.42        13.30 

Sale  price  Structural  shapes $35.18 

A  reclassification  of  the  foregoing  items  to  suit  the  pur- 
poses of  this  work  is  given  as  follows : 

Int.  on  Capital $0.60 

Overhead  expense   2.74 

Profit 7.42 

Labor 2.54 

Burdens  imposed  on  S.  Shapes $13.30 


22 


Constructive  Economics — 2nd  Supplement 


SUMMABY  OF  BECLASSIFICATIONS 

Ore  Pig  Iron     B.  Ingots  B.  Billets 

Int.  on  Capital $0.40  $0.39  $0.46  $0.54 

Overhead  expense.  . .    1.79  5.55  1.65  1.37 

Profit 66  .86  .84  1.77 

Labor 45  .77  .57  .55 

$3.30  $7.57  $3.52  $4.23 


Struct. 

Total 

$  0.60 

$  2.39 

2.74 

13.10 

7.42 

11.65 

2.54 

4.88 

$13.30 


$31.92 


KMimEmL 


The  foregoine  diagram  shows  that  the  exchange  values  of  raw  material  consist  of  the 
NATURAL  and  ARTIFICIAL  BURDENS. 

The  foregoing  diagram  is  a  .summary  of  the  reclassifi- 
cation of  the  foregoing  into  the  two  burdens,  but  is  presented 
rather  as  an  average  in  connection  with  producers  of  other 
kinds  of  raw  material,  than  in  mathematical  accord  with  the 
reclassification  given  here. 


ErcHANcel/AtuE 

MAMUFACTUaERft' 
CoMMOOiTlM 


The  foregoing  diagram  shows  that  the  exchange  values  of  commodities  manufactured 
consist  of  the  sum  total  of  the  NATURAL  and  ARTIFICIAL  BURDENS  imposed  upon 
raw  material  and  NATURAL  and  ARTIFICIAL  BURDENS  imposed  by  the  manufacturer. 


The  natural  and  artificial  burdens  of  manufacturers  of 
commodities  from  raw  materials  purchased  by  them,  are  very 
much  alike  and  similar  in  principle,  and  it  will  therefore  not 
be  necessary  to  present  these  except  in  the  average  form  of  a 
diagram. 


moLe$ALeK.s 


The  foregoing  diagram  shows  that  the  exchange  values  of  commodities  sold  by  whole- 
salers consist  of  the  sum  total  of  the  NATURAL  and  ARTIFICIAL  BURDENS  imposed 
upon  raw  material  and  NATURAL  and  ARTIFICIAL  BURDENS  imposed  by  the 
manufacturer  and  NATURAL  and  ARTIFICIAL  BURDENS  imposed  by  the  wholesaler. 

The  wholesaler  likewise  has  natural  and  artificial  burdens 
which  differ  considerably  with  reference  to  labor,  but  not  very 
much  in  the  percentage  of  overhead  expenses  and  profit. 


\  BxcHAfHQB  Value 

Retmurs 


The  foregoing  diagram  shows  that  the  exchange  values  of  commodities  sold  by  retailers 
consist  of  the  sum  total  of  tne  NATURAL  and  ARTIFICIAL  BURDENS  imposed  upon 
raw  material  and  NATURAL  and  ARTIFICIAL  BURDENS  imposed  by  the  manufact- 
urer and  NATURAL  and  ARTIFICIAL  BURDENS  imposed  by  the  wholesaler  and 
NATURAL  and  ARTIFICIAL  BURDENS  imposed  by  the  retailers. 


24 


Constructive  Economics — 2nd  Supplement 


The  retailer's  artificial  burdens  imposed  upon  the  ex- 
change values  of  his  commodities  are  out  of  all  proportions 
to  any  of  the  preceding  establishments.  These  relate  in  chief 
to  his  overhead  expenses  which  are  usually  quite  large  com- 
pared with  his  stock  in  trade  or  capital,  and  in  like  manner 
to  his  profits,  which  are  far  greater  in  percentage  than  in  any 
of  the  foregoing  economic  branches. 


paoo^'^'"":,. 


,1^ 


''"ti^C- 


**i*«,*-^  -  - 


AtamuM 

TO 

CoMSUMEftS 


The  foregoing  diagram  is  to  serve  the  purpose  of  pointing 
out  in  the  most  pronounced  manner  the  two  kinds  of  burdens 
which  have  been  designated  as  "artificial"  and  "natural." 

The  trinity  of  artificial  burdens  are  shown  to  a  good  ad- 
vantage, being  composed  of  interest  on  investment  of  capital, 
overhead  expenses,  and  profits.  The  natural  burdens  consist 
of  the  diflferent  kinds  of  labor  (intellectual  and  physical)  from 
raw  material  to  finished  products  delivered  to  consumers  via 
retailers,  and  are  shown  at  the  bottom  of  the  diagram  by  the 
shaded  portions  thereof. 

Under  individual  ownership  we  have  a  glimpse  of  the  arti- 
ficial burdens  as  these  are  repeated  "each"  in  the  several  sec- 
tions and  finally  all  embodied  in  the  selling  prices  of  retailers. 
The  consumer  pays  for  all  these  burdens  both  natural  and 
artificial. 

The  evolution  of  society  will  have  to  look  in  the  direction 
of  artificial  burdens,  and  gradually  reduce  these  by  regula- 
tions until  national  ownership  during  its  evolution  covering 
several  generations,  shall  have  caused  these  artificial  burdens 
to  have  ceased,  and  the  selling  prices  to  consumers  be  com- 
posed only  of  the  natural  burdens. 

There  is  a  vast  difference  in  practice  between  the  "theo- 
retical" dollar  as  used  by  the  operator,  manufacturer,  whole- 
saler or  retailer,  and  the  theory  of  this  dollar  based  either 
upon  23.22  grains  of  gold  constituting  an  asset,  or  based  upon 
the  standard  of  a  debt  constituting  a  liability. 


Morals  of  Burdens  25 


The  Money-language  which  is  used  to  measure  exchange 
values  is  in  practice  not  at  all  resting  on  gold  or  any  other 
commodity,  but  on  the  x\rtificial  and  Natural  Burdens  im- 
posed by  operators,  manufacturers,  wholesalers,  and  retailers. 

Money-language  is  therefore  applied  to  "burdens;"  it 
rests  or  is  based  exclusively  on  "burdens,"  and  not  on  gold. 

It  matters  little  what  economists  think  or  say  about  the 
standard  of  value,  but  it  does  matter  what  society  is  actually 
doing  with  this  money-language — what  it  does  constitutes 
the  facts,  truth  or  law. 

Operators,  manufacturers,  wholesalers  and  retailers  ap- 
ply the  money-language,  each  as  the  occasion  arises,  whereas 
the  government  furnishes  a  medium  of  exchange  based  on  a 
false  standard  of  value  (gold  or  debts),  or  in  case  of  checks 
the  depositors  of  banks  furnish  their  own  mediums  of  ex- 
change. 

MORALS  as  to  Burdens  Imposed  Upon  Exchange  Values. 

1.  That  the  wages  of  labor  paid  for  producing  com- 
modities constitute  a  Natural  Burden  in  the  de- 
termination of  the  exchange  values  of  such  com- 
modities. 

2.  That  the  wages  of  labor  paid  for  transportation  of 
commodities  constitute  a  Natural  Burden  in  the  de- 
termination of  the  exchange  values  of  such  com- 
modities at  their  different  places. 

3.  That  the  wages  of  labor  paid  for  the  distribution 
of  commodities  constitute  a  Natural  Burden  in  the 
determination  of  the  exchange  values  of  such  com- 
modities offered  to  consumers. 

4.  That  the  interest  on  investment  of  capital,  over- 
head expenses  and  profits,  constitute  Artificial 
Burdens  which  add  nothing  to  the  natural  value  of 
commodities  but  serve  merely  to  INCREASE  or 
SWELL  the  exchange  values,  incident  to  the 
system  of  individual  ownership. 

5.  That  the  Artificial  Burdens  are  in  fact  PENAL- 
TIES imposed  upon  the  consuming  public  by 
means  of  a  system  which  operates  in  a  most  ex- 
pensive, cumbersome  and  oppressive  manner  which 
it  is  possible  for  man  to  devise. 

6.  That  the  cheapest,  simplest  and  most  inexpensive 
system  of  production,  transportation  and  distribu- 
tion of  commodities  would  be  that  one  which 
would  operate  FREE  FROM  ALL  ARTIFICIAL 
BURDENS,  such  as  in  time  under  National  Own- 
ership whereby  only  the  Natural  Burdens  would 
be  imposed  upon  the  public  in  the  exchange  values 
of  commodities  offered  to  consumers. 

7.  That  Certificates  issued  upon  "labor  performed  for 
the  GOVERNMENT  (nation)"  as  a  medium  of 
exchange  would  be  the  first  step  in  the  direction 
tending  toward  an  eventual  elimination  of  Arti- 
ficial Burdens. 


Constructive  Economics — 2nd  Supplement 


MORALS  AS  TO  VALUE. 

In  this  work  it  has  been  found  necessary  to  disregard  all 
expressions  of  different  textwriters  in  their  relation  to  "value;" 
such  as  real  and  nominal  value,  subjective  and  objective  value, 
marginal  value,  etc.,  etc.,  and  follow  the  definition  and  classifi- 
cation of  value  as  laid  down  in  the  book  SOLUTION  as  fol- 
lows : 

"Value  is  the  expression  of  the  degree  of  natural 
utility,  ofttimes  measured  in  terms  of  money,  applied 
not  only  to  man's  labor  and  to  all  objects  movable 
and  immovable,  organic  and  inorganic,  concrete  or 
abstract  but  also  to  land  and  water  including  all  that 
is  within,  above  and  beneath  these."— SOLUTION, 
page  78. 

It  is  clear  from  this  definition  that  there  are  two  divisions, 
kinds,  or  classes  of  value : 

1.  One  which  relates  to  the  natural  condition  of  a 
commodity,  and  in  case  of  labor  to  the  natural 
degree  of  skill  thereof. 

2.  The  other  relates  to  the  exchange  values  of  com- 
modities, and  in  case  of  labor  to  the  wages  or  ex- 
change value  of  such  labor. 

In  consequence  of  this  division  the  first  one  has  been 
designated  as  "Natural  Values,"  while  the  other  is  termed 
"Exchange  Values." 

Natural  Values  relate  only  to  the  natural  condition  of 
commodities ;  that  is  to  say  whether  these  are  fit  for  use, 
damaged,  or  destroyed  in  part  or  in  whole ;  such  as  fruit, 
vegetables,  flour,  bread,  meats,  etc.,  etc. 

Natural  values  in  no  manner  require  a  consideration  of 
labor  or  the  wages  paid  for  any  labor.  This  applies  to  all 
commodities  and  productions,  such  as  furniture,  machines, 
instruments,  books,  paintings,  clothes,  buildings,  etc.,  etc., 
whereof  only  the  utility  of  each  is  taken  into  consideration 
without  reference  to  the  labor  which  brought  forth  these,  or 
the  wages  paid  therefor. 

Natural  values  of  commodities  are  judged  by  the  buyer 
who  determines  whether  or  not  their  nature  and  character  is 
suited  to  fill  his  demand. 

Exchange  values  are  expressions  in  money  language 
adopted  for  universal  convenience  without  any  regard  having 
been  taken  for  the  employment  of  a  standard  which  would 
serve  also  as  a  measure  of  money  language.  It  is  clear  that 
the  wages  paid  labor  under  individual  ownership  fluctuate 
even  as  the  exchange  values  of  commodities,  and  that  there- 
fore under  such  circumstances  labor  could  not  form  the  basis 
of  money.  But  the  government  could  easily  start  a  new  sys- 
tem whereby  labor  and  the  exchange  value  (wages)  of  labor 
would  be  made  the  basis  of  money;  and  upon  that  it  could 


Morals — Units  of  Values  27 

issue  a  medium  of  exchange  which  latter  would  always  ex- 
press (but  never  measure)  the  exchange  value  of  commodi- 
ties. 

Labor  of  a  certain  amount  performed  within  a  certain 
time  and  wages  paid  therefor  would  also  be  and  remain  the 
instrument  of  measurement. 

In  this  way  the  exchange  values  of  commodities  would 
always  run  parallel  with  the  wages  paid  labor,  unless  the 
natural  values  were  thereafter  either  accidently  or  through 
the  acts  of  natural  laws  impaired. 

Any  changes  in  the  schedule  of  wages  would  make  cor- 
responding changes  in  the  exchange  value  of  commodities. 

Whenever  the  government  has  embarked  upon  this  new 
foundation  of  making  its  money  based  upon  the  standard  of 
labor  and  the  value  of  the  standard  of  labor,  then  all  topics 
now  written  in  books  on  Political  Economy  will  become  dead 
languages. 

MORALS  RELATING  TO  UNITS  OF  VALUES. 

Every  commodity  is  subject  to  two  values:  One,  its 
natural  value  (utility)  which  necessarily  embraces  also  its 
bulk,  and  the  other  value  which  relates  to  a  money-value  or 
exchange  value. 

The  bulk  of  a  commodity  is  always  expressed  in  terms 
of  some  unit  of  measurement  whereof  either  the  footrule,  pint 
measure,  pound  weight,  etc.,  etc.,  is  the  instrument  which 
measures  the  bulk  into  its  physical  units;  thus,  at  retail, 
coffee,  sugar,  tea,  lard,  flour,  nails,  etc.,  are  sold  by  the  pound, 
oil  by  the  gallon,  lumber  by  the  square  foot,  cloth  by  the  yard, 
coal  by  the  ton,  etc. 

Whatever  the  custom  may  be  with  reference  to  a  com- 
modity, its  bulk  is  always  subject  to  some  standard  of  meas- 
urement which  brings  such  bulk  into  mathematical  relation- 
ship with  itself — the  standard  of  measurement. 

This  unit  which  may  well  be  called  the  physical  unit  of  a 
commodity  forms  also  the  basis  of  computing  the  exchange 
value  thereof. 

Whereas  the  physical  units  may  be  easily  ascertained  by 
re-measurements,  yet  the  exchange  value  of  such  physical 
unit  is  indeterminable  by  the  public  because  the  monetary 
unit  known  as  the  "dollar"  has  never  as  yet  been  fixed  or 
placed  or  based  upon  any  one  thing  which  possesses  measur- 
ing powers  with  reference  to  exchange  values,  as  other  stand- 
ards which  measure  the  number  of  physical  units  of  commodi- 
ties. 


28  CONSTBUCTIVE   ECONOMICS — 2nD   SUPPLEMENT 

FACTS  RELATING  TO  STANDARD  OF  VALUE. 

No  other  branch  of  economics  is  so  much  misunderstood 
and  so  much  garbled  by  textwriters  as  that  relating  to  the 
"standard  of  value"  which  forms  the  basis  upon  which  a  cir- 
culating medium  of  exchange  is  issued  or  coined. 

No  misconception  exists  or  arises  by  the  use  of  a  standard 
which  relates  to  the  measurements  of  objects  or  to  the  meas- 
urements of  liquids  or  to  their  weight. 

Common  and  commercial  parlance  are  even  in  scientific 
accord  with  the  use  of  the  footrule  as  the  standard  for  meas- 
uring objects  having  dimension,  the  pint  measure  as  the 
standard  for  measuring  the  volume  of  liquids  and  the  pound 
weight  as  the  standard  for  weighing  either  solids  or  liquids; 
but  with  reference  to  the  standard  of  value  whereby  the  ex- 
change value  of  objects  should  be  measured,  there  exists  the 
greatest  obscurity,  confusion  and  misconception.  A  "stand- 
ard" has  been  defined  as  follows : 

"A  standard  is  an  adopted  or  legalized  unit 
wherewith  to  determine  the  exact  mathematical  re- 
lationship of  all  other  objects  subject  to  such  unit." — 
SOLUTION,  page  89. 

The  standard  or  unit  to  be  selected  for  the  dollar  should, 
therefore,  be  composed  of  something  which  is  actually  capable 
of  measuring  most  accurately  the  exchange  values  of  all 
commodities. 

There  is  only  one  place  and  only  one  time  which  is  logi- 
cal,, scientific  and  in  accordance  with  the  facts  which  would 
permit  measurement  of  exchange  values,  and  that  is,  when 
natural  (utilities  or  commodities)  values  are  produced — when 
natural  values  are  created — when  natural  values  are  made, 
and  again  when  labor  is  necessary  for  their  transportation 
and  distribution. 

Wherever  or  whenever  natural  values  are  produced, 
transported,  or  distributed,  you  will  find  that  "labor"  is  the 
human  creator  or  cause  of  both. 

Nothing  could,  therefore,  be  more  within  the  realm  of 
sound  reasoning  than  to  have  the  wages  of  labor  act  also  as  an 
instrument  of  measurement  of  exchange  values  even  as  such 
labor  is  an  instrument  producing  natural  values. 

Labor  requires  time  in  its  production  of  new  natural 
values,  and  if  the  dollar  were  based  upon  a  certain  amount  of 
labor  within  a  certain  amount  of  time  and  the  wages  paid 
therefor,  it  would  be  possible  by  the  use  of  the  money  lan- 
guage to  have  an  accurate  measurement  and  expression  of  ex- 
change values  as  sound,  as  accurate,  as  mathematical,  as 
scientific  as  a  thermometer,  barometer,  meter,  etc. 


Kite-Dollar 


29 


The  physical  instruments  of  measurements  and  weights 
remain  the  same  as  long  as  no  governmental  changes  are 
made  in  relation  thereto;  and  so  the  money  value  (wages) 
of  labor  as  an  instrument  of  measurement  could  remain  the 
same  until  the  government  saw  fit  to  alter  it. 

The  money  value  (exchange  value)  of  labor  and  the 
exchange  value  of  utilities  or  commodities  produced  by  labor, 
would  be  constantly  running  parallel.  That  is  to  say,  the 
exchange  value  would  vary  directly  with  the  productive  and 
distributive  cost  as  per  wages. 


Retailer 

mOlJSALEU 
i/iAHUFACTURSR 

Operator, 


The  government  is  losing  time  trying  to  get  hold  of  that 
Kite-dollar  while  operators,  manufacturers,  wholesalers  and 
retailers  are  controlling  and  flying  it  one  at  a  time  where  each 
passes  it  to  the  other  while  waiting  in  line  to  get  hold  of  the 
string.  Each  time  this  Kite-dollar  is  handed  to  the  next  in 
line  he  gives  it  more  string  and  the  Kite-dollar  rises  higher 
and  higher  and  looks  smaller  and  smaller  until  the  last  man 
(retailer)   makes  the  Kite-dollar  look  like  a  penny. 

The  government  has  so  far  failed  to  own  or  control  this 
Kite-dollar;  therefore  it  lost  such  completely;  and  the  pro- 
ductive and  distributive  masters  now  have  it,  and  own  it,  and 
control  it,  and  do  with  it,  and  go  as  far  with  it,  as  they  please. 

The  Kite-dollar  will  never  come  to  the  government,  neith- 
er can  the  government  ever  reach  it. 


30  Constructive  Economics — 2nd  Supplement 

The  best  advice  is  to  have  the  government  make  another 
but  new  dollar — one  v^ithout  wings,  and  without  strings  tied 
to  it.  Keep  the  title  thereof  in  the  name  of  the  nation,  but 
allow  full  permission  to  everybody  who  desires  to  examine  it. 
Keep  the  dollar  within  close  range  and  reach  of  all. 

The  public  will  take  to  that  new  dollar  much  quicker 
and  more  kindly  than  to  a  Kite-dollar  which  can  only  be  seen 
from  the  distance ;  and  the  greater  the  fresh  breeze  of  economic 
profiteering,  the  higher  up,  and  the  farther  off  and  the  smaller 
will  be  the  vision  (purchasing  power)  of  that  Kite-dollar  until 
it  finally  looks  like  a  small  speck  in  the  sky  (market  places) 
too  srnall  to  be  of  any  value. 

People  are  not  going  to  break  their  necks  looking  sky- 
ward to  ascertain  the  purchasing  power  of  a  Kite-dollar  when 
it  is  possible  to  get  a  dollar  made  and  controlled  and  owned 
by  the  government,  whereof  the  purchasing  power  will  re- 
main constant  between  the  exchange  values  of  commodities 
and  the  wages  of  labor  producing  and  distributing  these  under 
governmental  industrialization. 

However,  the  Kite-dollar  should  and  must  live  until  it 
dies  of  old  age;  that  is  to  say,  when  its  usefulness  has  been 
wholly  outlived  and  fully  performed,  and  has  been  displaced 
by  a  dollar  which  does  not  permit  or  allow  artificial  burdens 
attached  to  natural  burdens. 

It  has  always  been  considered  of  late  years  a  function  of 
the  government  to  establish  standards  in  relation  to  weights 
and  measures  in  order  to  protect  the  public  from  abuses  and 
frauds.  It  now  becomes  no  less  a  duty  of  the  government  to 
establish  a  standard  for  its  own  use  in  relation  to  exchange 
values  whereby  the  future  public  buying  from  the  govern- 
ment may  not  be  exposed  to  or  burdened  by  unnecessary 
abuses  or  frauds  and  at  the  same  time  such  public  be  relieved 
of  all  artificial  burdens  necessarily  imposed  under  individual 
ownership  embracing  Interest  on  Investment,  Overhead  ex- 
penses, and  Profits. 

It  is  impossible  to  have  labor  act  as  a  sole  instrument 
of  measurement  of  exchange  values  under  our  present  system 
of  civilization  where  such  labor  is  performed  for  individuals; 
but  it  is  possible  to  start  a  new  system  and  slowly  grow  out 
of  this  system  in  a  few  generations  into  another  by  the  gradual 
industrialization  of  our  nation,  functioning  through  its  gov- 
ernment officials,  provided,  however,  that  a  most  substantial 
and  solid  foundation  has  first  been  laid  for  such  an  undertak- 
ing. 

No  solution  for  our  economic  ills  is  to  be  found  near  the 
surface  eruptions  such  as  consisting  for  instance  of  the  high 


Gold  :sot  Standard  of  Value  31 

cost  of  living,  labor  troubles  bringing  forth  strikes  and  lock- 
outs, corruptions  to  be  found  both  in  and  out  of  political 
service. 

Honesty  provides  no  remedy.  Man  has  for  generations 
been  honest  in  his  dealings  with  individuals,  but  that  amounts 
to  nothing,  for  we  have  been  learning  for  some  time  that  these 
particular  honest  dealings  have  constituted  dishonesty  as  to 
all  others;  and  we  are  just  beginning  to  feel  the  ill  effects  of 
it. 

Present  day  textwriters  claim  that  gold  coin  is  the  stand- 
ard of  value  when  as  a  matter  of  fact  such  coin  cannot  even 
measure  itself  either  as  to  quantity  or  value  because  such  re- 
quires a  pair  of  scales  and  also  a  bullion  value  established 
by  the  nations  or  by  arbitrary  congressional  enactments  de- 
claring the  number  of  grains  of  gold  to  constitute  the  dollar. 

Surely,  if  gold  possesses  no  qualities  or  powers  of  meas- 
uring its  own  quantity  or  value,  it  is  not  possible  to  expect 
from  it  a  service  whereby  it  could  measure  the  exchange  value 
of  other  commodities.  In  fact  not  a  single  commodity  on 
earth  can  measure  itself  and  therefore  such  cannot  measure 
any  other  commodity. 

The  Silver  Situation  in  the  United  States  1893  hy  F.  W. 
Taussig,  L.L.B.,  Ph.D.,  Prof,  of  Political  Economy  in  Harvard 
University. 

Page  126 — "In  fact,  gold  performs  the  functions  of  a 
measure  of  value  and  of  a  standard  of  value  with  as  close  an 
approach  to  perfection  as  there  is  any  reasonable  ground  for 
expecting  from  any  monetary  system." 

We  need  expect  no  monetary  reforms  ever  to  come  from 
Mr.  Taussig,  who  sees  almost  a  perfection  in  the  use  of  gold 
as  a  standard  of  value.  Mr.  Taussig  is  not  aware  of  the  fact 
that  gold  and  all  other  commodities  selected  as  a  standard 
are  not  capable  of  performing  the  functions  of  measuring  the 
monetary  values  of  other  commodities. 

Economics  1898  Edw.  T.  Devlne,  Ph.D.,  Staff  Lecturer  of 
the  American  Society  for  the  Extension  of  University  Teaching. 

Page  234 — "Money  is  the  standard  of  value  and  performs 
its  functions  by  acting  as  a  medium  of  exchange.  It  becomes 
the  standard  in   virtue   of  its   constant  use  as   such  medium." 

Under  Mr.  Devine's  conception  of  money  it  would  be  pos- 
sible to  have  fiat  money  in  circulation  become  a  standard  of 
value  simply  because  of  its  use. 

Money  and  Banking  1916  Wm.  A.  Scott,  Ph.D.,  LL.D.,  Di- 
rector of  the  course  in  Commerce  and  Prof,  of  Political  Economy 
in  the  University  of  Wisconsin. 

Page  2 — "A  standard  of  value  is  any  commodity  by  means 
of  which  people  measure  and  express  the  value  of  other  com- 
i  modities."  • 


Constructive  Economics — 2nd  Supplement 


Mr.  Scott  fails  to  recognize  the  fact  that  not  a  single 
commodity  ever  possessed  measuring  powers  or  properties 
insofar  as  these  relate  to  monetary  value. 

Labor  at  work  which  in  so  many  hours  or  days  brings 
forth  new  commodities  or  distributes  these,  is  the  only  in- 
strument on  earth  which  is  adapted  to  or  fitted  for  measuring 
exchange  values. 

Whenever  the  dollar  is  based  upon  a  certain  time  of  labor 
per  day,  or  as  I  suggest  for  the  present,  have  a  certain  num- 
ber of  dollars  based  upon  a  day's  labor,  according  to  that 
schedule  of  wages  which  our  government  would  adopt  at  least 
for  a  time,  then  it  would  be  possible  to  establish  mathemat- 
ically the  money  value  of  what  such  labor  produces  and  dis- 
tributes. 

Textwriters  on  money  have  as  a  rule  not  observed  or  point- 
ed out  that  under  individual  ownership  the  interest  on  the 
investment,  the  overhead  expenses  and  profits  of  producers 
of  raw  material,  of  manufacturers,  of  wholesalers,  and  of  re- 
tailers are  composed  of  artificial  burdens  which  are  in  varying 
proportions  added  to  the  actual  cost  of  labor  in  production, 
labor  in  transportation,  and  labor  in  distribution. 

Four  times  are  the  same  classes  of  artificial  burdens  each 
composed  of  a  great  many  and  variety  of  standards  of  meas- 
urement, incorporated  in  the  exchange  value  of  commodities. 
There  are  some  instances  but  not  many  where  the  burdens 
are  less  than  four,  but  never  less  than  two. 

All  our  troubles  arise  from  the  existence  of  entirely  too 
many  standards  of  measurements  determining  exchange 
values  whereof  the  seller  uses  these  instruments  himself  to 
his  own  gain  to  the  100%  extent,  while  the  buyer  only  gets 
the  result  handed  to  him  in  the  language  of  money.  I  dare 
say  that  the  most  illiterate  man  who  earns  his  wages  by  the 
sweat  of  his  brow  could  not  be  convinced  that  the  money 
(gold  or  silver)  which  he  hands  over  to  the  grocer  or  the 
butcher  measures  the  value  of  what  he  gets  in  exchange.  He 
is  waiting  in  perplexed  anxiety  to  find  out  what  the  exchange 
value  will  be  when  the  grocer  or  butcher  gets  through  figur- 
ing. To  him  it  appears  that  the  grocer  and  the  butcher  are 
figuring  to  get  all  the  money  they  can  out  of  him,  and  that 
the  only  task  left  for  him  is  to  count  out  enough  money  to 
equal  the  amount  demanded.  This  laborer  is  right  in  his 
judgment.  The  grocer  and  the  butcher  do  the  measuring  of 
exchange  values  while  the  consumer  does  only  the  paying. 

Whatever  applies  to  coins,  applies  with  still  greater  force 
to  the  Circulating  Notes  of  the  government  and  banks,  all 


Gold  not  Standard  of  Value  33 

of  which  are  based  upon  a  "standard  of  debt."  If  a  gold  coin 
which  constitutes  an  asset  of  the  nation  is  unable  to  measure 
money-values  of  commodities,  then  surely  a  Note  which  is 
nothing  more  than  a  Circulating  Liability  of  the  nation,  can- 
not be  expected  to  perform  the  functions  of  measuring  money- 
values. 

It  must  be  apparent  from  this  that  Nicholson's  quantity 
theory  which  assumes  that  money  may  consist  of  Dodo-bones 
is  not  far  from  the  truth.  I  will  go  one  step  farther  and  say 
that  all  gold  and  silver  coined  into  money  are  no  better  than 
if  we  used  Dodo-bones;  and  that  our  Circulating  Notes  are 
worse  than  Mr.  Nicholson's  Dodo-bones.  An  interesting  criti- 
cism by  Prof.  Scott  (University  of  Wisconsin)  and  B.  M. 
Anderson  (Harvard  University)  regarding  Nicholson's  theory 
is  to  be  found  in  the  book  entitled  The  Value  of  Money  (B. 
M.  Anderson)  1917,  on  pages  81  to  82  and  also  pages  130  to 
153. 

I  do  not  myself  want  or  advocate  Dodo-bones  any  more 
than  Greenbacks,  because  neither  are  based  upon  a  standard 
of  value ;  but  to  say  that  gold,  silver,  or  any  other  commodity 
is  capable  of  performing  the  functions  of  a  "standard"  by 
measuring  values — is  to  admit  total  ignorance  of  all  that 
which  a  standard  is  required  to  perform. 

There  is  a  vast  difference  between  an  instrument  which 
measures,  and  another  which  merely  expresses  the  results  of 
measurements. 

It  takes  the  footrule  for  measurements,  but  we  may  take 
buttons,  chips,  or  Dodo-bones  to  express  the  results  thereof. 
The  economic  world  has  merely  substituted  "gold"  for  the 
buttons,  chips  and  Dodo-bones,  and  gold  whether  in  the  form 
of  coins  or  buttons,  or  chips,  or  Dodo-bones — such  gold  never 
did  and  does  not  now  possess  measuring  properties  in  relation 
to  money  value. 

This  inability  of  any  commodity-money  to  perform  func- 
tions of  measuring  values  extends  not  only  to  everything  of 
exchange  value,  but  it  necessarily  includes  the  identical  com- 
modity of  which  it  is  made. 

A  $20.00  gold  coin  does  not  even  measure  itself ;  it  merely 
expresses  the  results  of  measurements  made  in  the  mint  of 
gold  and  alloy  supposed  to  be  in  conformity  with  govern- 
mental regulations. 

How  can  anyone  measure  such  a  coin  as  to  value?  We 
merely  take  it  for  granted  that  the  measurements  were  made 


34  Constructive  Economics — 2nd  Supplement 

as  required.     Suppose  they  are  less  or  in  other  proportions? 
How  are  we  to  know? 

An  assayer  is  the  only  one  who,  by  a  tremendous  task,  is 
able  to  check  up  the  measurements  made  in  the  mint. 

Surely  it  is  going  beyond  all  facts  and  reason  to  claim 
that  gold  coins  are  able  to  measure  the  value  of  all  other 
commodities  when  in  fact  such  coins  are  not  able  to  measure 
their  own  value. 

Only  one  standard  for  measuring  exchange  values  is  pos- 
sible and  necessary;  and  when  our  country  will  have  adopted 
this  standard  it  will  begin  to  embrace  and  enjoy  its  great  and 
glorious  prospects  which  lie  in  the  future  before  us. 

This  "standard  of  value"  for  money  is  defined  as  follows : 

"The  standard  of  value  is  a  legalLzed  unit  of  in- 
herent value  used,  not  only  to  determine  the  cost 
price  of  the  products  and  achievements  of  every  kind 
of  human  labor,  but  also  forming  the  basis  of  money 
upon  which  to  issue  a  circulating  medium  of  ex- 
change." 

This  is  a  definition  which  does  not  yet  apply,  but  into 
which  this  nation  will  eventually  have  to  grow;  in  other 
words,  a  prenatal  definition  of  that  real  standard  of  value  of 
the  highest  grade  which  is  yet  to  be  born  and  embraced. 

All  sound  money  is  composed  of  two  elements,  namely, 
the  medium  of  exchange,  and  the  standard  of  value. 

The  standard  of  value  is  composed  of  the  ''standard  of 
labor,"  and  the  "exchange  value"  (wages)  of  the  standard  of 
labor. 

"The  standard  of  labor  is  the  adopted  or  legal- 
ized unit  of  one  day's  common  labor  performed  for 
the  government  in  accordance  with  regulations  set- 
ting forth  the  number  of  hours  and  amount  of  labor." 

"The  value  of  the  standard  of  labor  is  the  adopt- 
ed or  legalized  amount  offered  or  paid  by  the  gov- 
ernment for  the  standard  of  labor." 

These  definitions  are  also  to  be  found  on  page  8  of  the 
first  Supplement  to  the  book  SOLUTION. 

For  a  full  and  complete  presentment  of  the  foregoing 
consult  both  book  and  Supplement. 

MORAL  AS  TO  THEORETICAL  STANDARD  OF 
VALUE. 

For  all  practical  purposes  it  would  not  make  any  differ- 
ence if  the  theoretical  dollar  were  based  upon  the  birds'  nests 
in  the  forest  instead  of  23.22  grains  of  gold. 


Theoretical  Standard  of  Value  35 

No  one  ever  thinks  of  gold,  any  more  than  he  does  of 
cement  blocks  when  buying  or  selling  the  things  which  satisfy 
human  wants. 

The  people  want  results;  and  these  results  consist  of 
food,  shelter,  clothing,  amusement,  transportation,  etc.,  etc. 

We  use  money  merely  as  a  means,  and  do  not  as  the 
economist  consider  it  a  gold  commodity  which  is  "bartered" 
in  every  exchange. 

In  fact  the  dollar  of  today  is  based  largely  on  debts,  and 
still  we  transact  our  business  as  before,  using  a  great  variety 
of  instruments  for  measuring  and  determining  exchange 
values,  without  reference  to  any  particular  standard.  In 
practice  this  theoretical  dollar  is  whipped  into  any  line  or 
angle  which  satisfies  the  profiteer  of  the  1%  kind  to  the 
100%  thereof. 

By  taking  the  physical  dollar  and  buying  the  things  we 
need,  we  approximate  its  purchasing  (exchange)  power.  We 
know  definitely  what  things  we  consume  or  need  each  week 
or  month;  and  so  it  is  possible  to  determine  from  the  selling 
prices  of  commodities,  how  many  of  these  physical  dollars 
we  will  require  each  week  or  month  as  the  case  may  be. 

We  measure  the  purchasing  power  of  the  physical  dollar 
by  what  we  are  able  to  get  in  exchange  for  it,  but  that  amounts 
to  "nothing"  because  we  have  always  known  such  power  to 
vary  mathematically  (inversely)  with  the  rise  and  fall  of  the 
exchange  value  of  commodities.  What  we  want  is  to  measure 
the  "rise  and  fall"  over  which  we  at  present  have  no  control. 

What  we  therefore  need  is  a  fixed  standard  of  value  so 
that  it  would  be  possible  to  check  over  the  cause  of  any  rise 
or  fall  in  the  selling  prices  of  commodities.  Without  such  a 
standard  we  are  in  the  realm  of  darkness  about  exchange 
values ;  and  dealers  are  able  to  take  the  most  undue  advantage 
of  their  buyers  by  tacking  on  most  unreasonable  profits  for 
themselves.  Every  little  boy  knows  the  purchasing  power  of 
money  and  that  is  nothing  to  brag  about.  He  knows  that  10c 
today  will  give  him  no  more  candy  than  5c  did  two  years  ago. 
Such  knowledge  is  of  no  value  except  to  indicate  that  errors 
are  in  existence  in  our  economic  system  and  in  relation  to 
money. 

Any  little  boy  can  "compare"  the  selling  price  of  candy 
with  the  amount  of  money  he  must  offer  for  its  payment,  but 
such  knowledge  is  too  primitive  to  satisfy  the  grown-up  man 
who  wants  an  instrument  for  measuring  money-values,  rather 
than  something  else  which  merely  acts  as  a  "comparison"  of 
values. 


36  Constructive  Economics — 2nd  Supplement 

Some  textwriters  do  claim  that  money  or  gold  does  not 
possess  measuring  powers  or  qualities  for  determining  ex- 
change values  and  they  therefore  use  the  word  "compare" 
instead  of  "measure." 

Principles  of  Economics  1913  by  Henry  R.  Seager,  Prof, 
of  Political  Economy  in  Columbia  University. 

Page  324 — "Some  writers  describe  money  as  the  measure 
of  values,  but  it  is  evident  that  as  a  measure  it  is  not  in  the 
same  class  as  a  footrule  or  a  bushel.  It  is  a  convenient  stand- 
ard for  comparing  values  or  a  common  denominator  to  which  all 
values  may  be  reduced;  but  as  a  measure  of  values  in  any  abso- 
lute sense  it  is  untrustworthy,  since  it  is  itself  variable  in 
value." 

The  "dollar  is  resting  on  shifting  and  sinking  sands,  and 
is  slipping  and  sliding  as  if  on  skates  driven  in  a  race  for 
wealth  between  capital  and  labor." 

Dealers,  manufacturers  and  operators  use  the  theoretical 
dollar  as  a  mere  tool  whereby  to  express  in  money-form  their 
passions  for  profit  embodied  in  exchange  values.  Buyers  are 
forced  to  yield  as  innocent  victims,  their  dollars  in  payment 
under  a  system  just  as  sheep  are  compelled  to  yield  up  their 
wool  to  the  shears  of  those  who  claim  to  own  them  without 
the  consent  of  such  sheep. 

Suppose  a  laborer  produces  a  small  clay  marble  which  a 
consumer  wants.  This  consumer  under  our  system  is,  how- 
ever, only  able  to  get  this  marble  after  it  has  passed  through 
many  hands  from  the  factory  in  which  it  was  made  down  to 
the  retail  store  where  it  is  offered  to  the  consumer.  Let  us 
use  "mud"  to  reprCvSent  the  artificial  values  which  make  up 
in  a  large  measure  the  exchange  value  (selling  price)  thereof. 
As  soon  as  the  laborer  has  made  this  clay  marble  the  manu- 
facturer puts  on  a  good  thick  coating  of  mud  (artificial  bur- 
dens) around  it  and  in  that  form  passes  it  to  the  wholesaler. 
The  wholesaler  takes  this  marble  with  its  burdens  expressed 
in  mud,  and  adds  quite  liberally  another  batch  of  mud,  and 
in  that  manner  he  disposes  of  it  to  the  retailer — who,  when 
he  gets  it,  puts  enough  mud  on  it  to  make  it  look  as  big  as  a 
football.  When  the  consumer  gets  this  football  he  takes  it 
home  and  after  stripping  off  all  the  mud  of  artificial  burdens, 
he  finds  the  little  clay  marble  just  as  the  labor  produced  it. 

Any  man  can  see  that  there  is  something  wrong  in  our 
system  of  economics  when  a  consumer  has  to  pay  football 
prices  for  a  little  clay  marble  which  ought  to  be  retailed  at 
marble  prices. 

This  same  man  ought  to  understand  that  there  is  no  such 
a  thing  as  a  one  standard  of  value,  but  that  there  are  innu- 
merable standards  or  instruments  all  of  which  have  a  voice 
in  swelling  the  exchange  value. 


PUBOHASIKG  POWEB  OF  MONEY 


37 


OPf  RATOR 


£XC/yA/VG£  Valui 


lAAhurAcruRe-R 


0 


PURCHASiHGPowt* 
1 


% 


'h 


Whousaler 


REfAILER 


■U 


The  foregoing  illustration  is  intended  to  show  diagram- 
matically  the  great  "artificial  burdens"  of  Interest  on  the  invest- 
ment of  Capital,  Overhead  expenses  and  Profits,  which  when 
added  to  the  natural  burdens  (wages  of  labor)  impose  almost 
unbearable  selling  prices  upon  the  buying  public. 

C  represents  raw  commodities  at  the  production  cost 
of  labor 

Ct  represents  finished  commodities  at  the  production 
cost  of  labor 

Ctt  represents  finished  commodities  at  the  distribu- 
tive cost  of  labor 

Cttt  represents  finished  commodities  at  the  dis- 
tributive cost  of  labor 

Note  carefully  that  the  mine  operator  and  farmer,  manu- 
facturer, wholesaler,  and  retailer  have  handled  this  theoretical 
dollar  so  that  its  purchasing  power  during  its  journey  has 
been  ultimately  reduced  to  1/16.  While  this  may  be  true  of 
some  articles,  yet  as  a  whole  it  constitutes  an  exaggeration. 

It  cannot  be  said  that  the  government  controls  the  "stand- 
ard" which  is  to  measure  values  when  in  fact  it  is  the  mine 
operator  and  farmer,  the  manufacturer,  the  wholesaler,  and 


38  Constructive  Economics — 2nd  Supplement 

the  retailer  who  control  it.    The  gold  standard  is  a  huge  joke; 
it's  a  dream — a  dream  of  would-be  statesmen. 

No  amount  of  governmental  regulations  will  relieve  us 
of  artificial  burdens  either  big  or  little  as  long  as  we  endure 
under  the  system  of  Individual  Ownership.  It  will,  there- 
fore, be  the  duty  of  the  government  to  start  in  the  future  a 
new  system  eliminating  all  artificial  burdens  while  the  old  one 
would  remain  in  constant  and  continued  competition  and  op- 
eration until  the  survival  of  the  fittest  decides  the  fate  or 
destiny  of  each. 

We  cannot  blame  the  theoretical  dollar  for  the  mischief 
it  is  doing  for  the  consumers  of  commodities,  etc. 

Another  look  will  disclose  that  in  practical  economics 
it  is  not  the  inorganic,  defenseless  dollar  which  is  to  be 
blamed  in  its  use  by  mining  operators,  manufacturers,  whole- 
salers and  retailers,  each  of  whom  is  injecting  "artificial  bur- 
dens,'* but  the  economists  who  make  no  distinction  between 
something  which  is  in  constant  motion  or  movement  during 
its  creation  or  production,  and  another  thing  which  is  rela- 
tively at  rest. 

To  measure  something  at  rest  we  use  the  footrule,  pint 
measure  or  the  pound  weight.  But  to  measure  something  in 
motion — in  course  of  construction,  development  or  evolution, 
such  as  commodities  in  the  process  of  manufacture  or  produc- 
tion— we  must  adopt  something  (labor)  which  is  itself  in  par- 
allel motion. 

In  fact  production  is  in  parallel  motion  with  "labor" 
which  produces. 

Therefore  to  measure  the  money-value  of  production  it 
would  be  necessary  to  use  the  wages  of  labor  which  in  its 
daily  work  (motion)  sets  the  pace  of  production. 

Labor  is  constantly  creating  new  commodities.  While 
these  are  in  the  process  of  being  made,  these  are  industrially 
growing  or  developing. 

To  measure  accurately  the  money-value  of  their  growth 
it  would  be  absolutely  necessary  to  use  the  wages  paid  for 
these  during  their  growth  or  development  into  a  finished  com- 
modity. Gold  or  any  other  thing  is  utterly  unable  to  perform 
that  task.  After  the  commodity  has  been  finished,  ready  for 
consumption,  and  such  is  no  longer  in  any  process  or  stage 
of  development,  then  we  may  use  the  footrule,  pint  measure 
or  pound  weight,  as  the  case  may  be. 

Money  is  also  like  a  game  of  shinny  which  the  boys  play 
on  ice,  each  having  a  shinny-stick,  while  the  theoretical  dollar 
is  the  shinny. 

This  theoretical  dollar  is  willing  to  obey  everyone  who 
has  a  big  stick  in  his  hand  and  knows  how  to  use  it,  while 
those  who  have  gathered  around  to  watch  the  game  are  fre- 


Morals  as  to  Standard  of  Value 


quently  hit  with  the  shinny,  which  makes  a  very  noticeable 
impression  wherever  it  strikes. 

Money  to  be  based  on  a  standard  of  value  would  have 
to  possess  something  (labor  and  wages  of  labor)  which  would 
be  cemented  down,  and  so  firm  that  no  individual  human 
power  could  move  or  alter  it  except  congress.  Anybody  in 
business  today  can  kick  the  theoretical  dollar  as  hard  as  his 
heart  desires,  provided  he  confines  himself  within  the  distant 
boundaries  of  supply  and  demand,  and  competition. 

MORALS  AS  TO  STANDARD  OF  VALUE 

1.  That  the  standard  of  value  cannot  be  placed  upon 
any  instrument  which  is  at  rest  with  reference  to 
the  earth;  and  that  therefore  no  commodity  has  or 
can  possess  qualifications,  powers  or  properties  for 
measuring  values. 

2.  That  natural  values  in  their  many  processes  of  pro- 
duction from  the  mining  of  ore, — the  reduction  of 
ore  into  metal, — the  manufacture  of  metal  into  com- 
modities,— the  transportation  and  distribution  of 
such  commodities,  all  these  require  objects  or  mat- 
ter (ore,  metal)  to  be  in  motion,  in  the  process  of 
development. 

During  the  time  of  production  from  the  Alpha  of 
raw  material  to  the  Omega  of  a  finished  product, 
"values"  are  being  developed,  "values"  are  grow- 
ing,— values  which  relate  to  natural  utility  as  well 
as  to  money-value. 

After  the  final  step  in  production  and  transporta- 
tion has  been  taken,  and  the  finished  product  is  at 
rest — then  we  may  invoke  the  aid  of  a  footrule, 
pound  weight  or  pint  measure,  etc.,  to  determine 
the  money-value  of  the  "bulk"  from  the  number  of 
imits  therein. 

3.  That  labor  is  the  creator  at  work,  or  the  cause 
bringing  forth  the  productions  from  raw  material 
to  the  finished  products,  and  that  its  wages  meas- 
ure the  cost  value  thereof. 

4.  That  under  our  system  of  individual  ownership  of 
the  means  of  production,  transportation  and  dis- 
tribution, labor  is  constituted  a  "commodity" 
whereof  its  value  (wages)  depends  upon  supply 
and  demand  as  other  commodities;  and  that  there- 
fore such  labor  and  its  wages  cannot  be  used  as  a 
standard  of  value. 

5.  That  the  U.  S.  government  is  the  only  institution 
which  could  inaugurate  a  new  system  by  employ- 
ing its  labor  and  the  wages  paid  therefor  as  the 
standard  of  value,  while  engaged  in  the  produc- 
tion of  national  improvements  at  first,  and  later  in- 
dustrializing itself  by  nationalizing  one  industry  at 
a  time,  starting  each  from  the  ground  up  as  neces- 

i  sity  demands. 


40  .    Constructive  Economics — 2nd  Supplement 


ECONOMIC  CONCLUSIONS  RELATING  TO  MONEY. 

L  That  money  based  upon  or  representative  of  a  com- 
modity, places  such  money  upon  something  of 
"natural  value'^  or  utility,  and  thereby  complies  with 
the  requirements  as  to  **value,"  but  does  not  com- 
ply with  the  requirement  of  a  "standard"  serving 
as  an  instrument  for  measuring  money-values. 

2.  That  money  should  rightfully  be  based  upon  or  be 
representative  of  something  of  natural  value  or 
utility,  which  something  should  possess  the  powers 
of  measuring  money-values  of  all  other  natural 
values  (commodities,  etc.). 

3.  That  money  based  upon  or  representative  of  some- 
thing of  natural  value,  is  not  in  itself  sufficient  to 
complete  the  requirements  of  a  "standard  of  value" 
because  a  standard  of  value  is  composed  of  two 
elements,  namely: 

(a)  Something  of  natural  value 

(b)  The  same  something  possessing  also  a 
money-value  capable  of  measuring  the 
money-values  of  all  other  natural  values 
(commodities,  etc.). 

4.  That  all  mediums  of  exchange  should  be  merely 
representative  expressions  of  money-values,  de- 
termined by  the  "standard  of  value." 

5.  That  textwriters  have  correctly  stated  that  money 
"should  consist"  of  a  medium  of  exchange,  and 
also  of  a  standard  of  value,  but  these  have  mistaken 
the  many  operative  standards  of  the  Artificial  and 
Natural  burdens  for  the  inoperative  gold  stand- 
ard. 

Giving   money   of   today  an   interpretation   of  the 
widest  range  so  as  even  to  include  checks,  we  find 

1.  That  none  of  the  coins  and  none  of  the  gold 
and  silver  Certificates  all  based  on  a  standard 
of  value,  and 

2.  That  none  of  the  Legal  Tender  Notes,  none  of 
the  National  Bank  Notes,  none  of  the  Federal 
Reserve  Notes,  and  none  of  the  Federal  Re- 
serve Bank  Notes  all  based  on  a  standard  of 
debt. 

all  such  money  fails  to  possess  measuring  powers 
and  properties. 

6.  It  is  the  Artificial  and  Natural  burdens  expressed 
in  money-language  which  measure  money-values. 

7.  That  labor  is  the  creator  or  producer  of  all  natural 
values,  and  the  wages  of  labor  (the  latter  performed 
for  the  nation)  should  constitute  the  instrument 
of  measurement;  whereas  Labor  Certificates  would 
constitute  the  medium  of  exchange  expressing  the 
results  of  all  measurements  of  money-values  in 
terms  of  (money  language)  money.  Subsidiary 
coins  could  likewise  be  based  upon  the  same  stand- 
ard of  value  and  be  termed  "Labor  Coins." 


Conclusions  and  Moraxs  41 


GENERAL  CONCLUSIONS  ABOUT  ECONOMIC 
SYSTEM. 

L  That  as  long  as  the  capitalist  system  will  continue 
(for  at  least  several  generations)  to  exist,  so  long 
will  labor  in  its  employ  constitute  a  "conmiodity" 
the  money-value  (exchange  value)  whereof  will 
fluctuate  as  other  commodities  according  to  the 
demand  and  supply  thereof. 

2.  That  labor  and  its  wages  as  a  "standard  of  value" 
for  money  cannot  therefore  be  applied  to  or  em- 
braced by  the  capitalist  system. 

3.  That  only  the  national  government  is  capable  of 
making  labor  and  the  wages  of  such  labor  the 
"standard  of  value"  whenever  such  labor  and  its 
wages  are  made  to  apply  to  the  construction  or 
erection  of  national  improvements,  etc. 

4.  That  the  national  government's  special  duty  should 
be  to  regulate  the  "artificial  burdens"  imposed  upon 
all  exchange  values  arising  under  the  capitalist 
system. 

5.  That  the  national  government's  duty  should  be  to 
start  a  new  system  of  pure,  practical  and  perfect 
"ECONOMY"  by  first  laying  a  proper  foundation 
of  constructing  or  erecting  national  improvements, 
using  "Labor  and  its  wages"  as  the  "standard  of 
value"  upon  which  to  issue  a  medium  of  exchange 
(Labor  Certificates);  and  thereafter  such  govern- 
ment should  proceed  as  necessity  requires  to  in- 
dustrialize the  nation  by  taking  one  commodity  at 
a  time  and  starting  its  manufacture  from  the  ground 
up,  and  effecting  its  distribution  upon  the  basis  of 
natural  burdens  only. 

(I  recommend  for  study  the  1st  Supplement  to  the 
book  SOLUTION,  embodying  the  subject  matter 
of  money.  Individual  Ownership  and  Government 
(national)    Ownership.) 

MORALS  AS  TO  GOLD  AND  LABOR. 

1.  In  case  of  a  Gold  Certificate  the  government  cer- 
tifies that  gold  coin  has  been  deposited  in  the  U.  S. 
Treasury.  We  assume  that  such  deposit  has  been 
made. 

2.  In  the  case  of  a  Labor  Certificate  the  government 
would  certify  that  "labor"  has  been  performed  for 
the  nation.  We  would  likewise  have  to  assume 
that  such  labor  had  been  performed.  But  the 
products  or  improvements  resulting  from  such 
labor  would  be  "visible"  to  all  who  would  desire  to 
see  these. 

3.  The  nation  can  be  enriched  by  labor,  even  as  labor 
enriched  individuals  while  in  their  employ — but  the 
nation  cannot  be  enriched  by  gold  coin  which  is  ly- 
ing idle  in  the  U.  S.  Treasury. 


42  CONSTBUCTIVE   ECONOMICS — 2nD   SUPPLEMENT 


4.  Labor  is  able  to  bring  forth  national  improvements 
and  products  while  in  the  employ  of  the  govern- 
ment— but  gold  stored  in  the  U.  S.  Treasury  necessi- 
tates an  expenditure  for  vaults  and  guards. 

5.  Labor  is  at  all  times  proportional  to  the  size  of  its 
society.  A  small  society  requires  little  and  pos- 
sesses little  labor.  A  large  society  requires  much 
and  possesses  much  labor. 

6.  Gold  bears  no  relation  to  society,  but  labor  does. 

7.  Money  based  upon  labor  and  its  wages  would  nm 
parallel  with  the  needs  and  wants  of  society. 

OBJECT  OF  LABOR  CERTIFICATES. 

(Not    here    considering   payments    of   pensions.) 

Labor  Certificates  should  only  be  paid  out  by  the  gov- 
ernment for  work  and  labor  performed  for  the  nation;  and 
these  certificates  would  quickly  find  their  way  into  the  banks 
where  these  are  intended  to  accumulate  and  thereby  fortify 
such  banks  against  any  unusual  demands  created  by  panics; 
so  that  ultimately  any  kind  or  number  of  industrial  paralysis 
would  in  no  way  or  manner  interfere  with  the  regular  opera- 
tion of  banking. 

The  primary  purpose  of  the  Labor  Certificate  is  to  enable 
the  banking  institutions  which  are  performing  the  functions 
of  a  heart  for  the  nation,  to  remain  in  constant  operation 
during  panics.  The  secondary  purpose  is  to  remove  poverty 
and  enforced  industrial  idleness  from  the  nation  due  to  chronic 
or  acute  (panicky)  unemployment. 

The  third  purpose  is  to  lessen  the  sudden  loss  of  wealth 
of  individuals  occasioned  also  by  panics. 

The  fourth  purpose  of  the  Labor  Certificate  is  to  permit 
an  orderly,  logical  and  righteous  transition  from  individual 
to  national  ownership  of  everything  of  natural  value  by 
avoiding  all  haste  or  speed  for  the  accomplishment  of  this 
end. 

SUMMARY  CONCLUSIONS  ABOUT  LABOR 
CERTIFICATES. 

Labor  Certificates  will  in  time  prove  to  be  the  solution, 
effecting  an  emancipation  of  all  classes  from  their  seemingly 
insurmountable  obstacles  and  difficulties  encountered  in  the 
political,  industrial,  financial,  social  and  intellectual  activities 
because : 

1.  These  rest  on  the  firmest  rock  of  foundation  com- 
posed of  the  highest  wisdom  and  best  experiences 
of  man. 

2.  Their  use  as  an  exchange  medium  is  limited  to 
labor  and  in  their  ultimate  use  will  apply  wholly 
and  solely  and  strictly  to  labor  to  the  100%  thereof, 
except  payment  of  pensions. 


Conclusions  43 


3.  Their  use  for  several  generations  would  not  only 
provide  for  an  orderly  progress,  but  bring  about 
and  vitalize  that  indispensable  evolution  which 
would  gradually  displace  individual  with  national 
ownership. 

4.  Their  use  would  quietly  and  lawfully  and  righteous- 
ly depose  financial  and  industrial  kings  by  a  change 
of  the  tide  of  production  from  in(Hvidualism  to  na- 
tionalism. 

5.  All  citizens  would  eventually  be  crowned  masters; 
and  government  officials  would  gradually  turn  from 
the  despotism  of  ruling  to  the  loftiest  dignity  of 
serving  their  masters — not,  however,  as  slaves,  but 
as  the  most  learned,  dignified,  and  exclusively  com- 
petent master-agents  of  the  citizens,  whose  sole 
object,  aim  and  pleasure  it  would  be  to  furnish 
environments  yielding  to  all  their  people  the  great- 
est national  peace  and  happiness  possible  within 
their  range  of  wisdom,  as  distinguished  from  their 
official  progenitors  who  ruled  the  masses  solely 
for  the  selfish  ends  of  gratifying  imaginary  hon- 
ors or  satisfying  their  lust  for  power  or  profit. 

6.  Their  use  would  develop  "order**  (nationalization) 
out  of  artificial  chaos  (individualism)  bringing 
forth  the  greatest  efficiency  through  co-ordination 
and  co-operation  of  every  element  in  the  sphere 
of  human  activities  tending  toward  the  develop- 
ment and  crystallization  of  one  great  national  unit 
in  "MAN,  PROPERTY  AND  POWER." 

7.  Their  use  would  finally  demonstrate  that  Labor 
Certificates  constitute  the  pivotal  point  upon 
which  a  whole  nation  can  be  made  to  swing  with- 
in a  few  generations  from  its  100%  intolerable  hell 
to  at  least  an  1%  heaven  and  upward. 

SUMMARY  CONCLUSIONS  ABOUT  FIAT  MONEY. 

Fiat  money  would  be  dangerous  because : 

1.  It  rests  on  no  foimdation  of  value,  nor  is  it  rep- 
resentative of  anything  of  value. 

2.  Its  use  as  an  exchange  medium  would  therefore  be 
unlimited  and  arbitrary. 

3.  It  would  preclude  an  orderly  and  necessary  evolu- 
tion from  individualism  to  nationalism. 

4.  It  would  create  financial  kings  in  the  place  of  in- 
dustrial kings — more  terrible  than  ever. 

5.  It  would  demonstrate  to  our  sorrow  the  inability  of 
government  officials  to  industrialize  the  nation. 

6.  It  would  lead  to  intolerable  inefficiency,  neglect, 
and  gross  corruption. 

7.  It  would  finally  result  or  end  in  Bolshevism  as  the 
term  is  now  used  in  its  popular  sense  in  our 
country,  which  would  mean  bloodshed,  riots,  plun- 
dering, arson  and  finally  revolution. 


44  Constructive  Economics — 2nd  Supplement 


PRIMARY  CONCLUSIONS  NO.  1. 

1.  That  economists  have  worked  out  the  proper  ele- 
ments of  which  money  should  be  composed,  name- 
ly, a  medium  of  exchange  and  a  standard  of  value. 

2.  That  economists  are  aware  that  a  standard  of  value 
implies  measurements  in  relation  to  values. 

3.  That  economists  have  considered  "gold"  the  most 
suitable  commodity  to  satisfy  the  feature  of  a 
money  value. 

4.  That  economists  have  failed  to  understand  that 
gold  even  as  all  other  commodities  is  absolutely 
unable  to  perform  the  functions  of  measuring  ex- 
change values. 

5.  That  all  facts  in  relation  to  money,  and  exchange 
values  were  at  all  times  obtainable  by  means  of 
investigations;  and  that  therefore  all  students  of 
Political  Economy  have  been  and  are  still  being 
misled  and  misguided  by  wrongful  theories  promul- 
gated in  their  text  books,  thereby  disqualifying 
these  for  rendering  in  the  future  any  beneficial  serv- 
ice in  that  respect  to  their  country. 

PRIMARY  CONCLUSIONS  NO.  2. 

1.  That  economists  agree  Political  Economy  embraces 
production  and  distribution  of  everything  of  nat- 
ural value  (wealth,  commodities,  etc.). 

2.  That  economists  have  given  us  the  right  name  for 
their  science,  namely.  Political  Economy;  but  these 
have  failed  to  recognize  that  as  yet  every  nation 

is  operating  imder  a  system  of  the  greatest  Political 
EXTRAVAGANCE  (artificial  burdens). 

3.  That  economists  unaware  of  Political  Extrava- 
gance have  been  offering  Reform  Measures  which  in 
fact  would  not  even  appease  but  tend  to  aggravate 
the  economic  disease  of  extravagance. 

4.  That  economists  have  failed  to  discover  that  the 
creative  cause  for  either  Political  Economy  or  Po- 
litical Extravagance  lies  with  the  character  of 
money  in  use. 

5.  That  the  progress  of  every  nation  will  depend  upon 
its  ability  to  embrace  a  reform  measure  which  will 
be  in  keeping  and  harmony  with  Economy — Politi- 
cal Economy. 

PRIMARY  CONCLUSIONS  NO.  3. 

1.  That  in  the  industrial  development  during  the  last 
century  there  has  been  exemplified  the  same  prin- 
ciple which  has  always  been  in  operation,  even  so 
in  tile  evolutionary  progress  of  organisms  from 
Haeckel's  well-known  Monera  (a  homogeneous 
mass  of  the  smallest  unit  of  organic  matter,  the 
size  of  a  little  pin  head)  up  to  and  including  man. 


Conclusions  45 


That  this  universal  natural  law  or  principle  con- 
sists of  the  "survival  of  the  fittest;^*  this  means 
that  something  of  superior  merit  which  receives 
recognition  will  in  time  displace  everything  else 
which  is  inferior  but  in  general  use. 

That  in  the  survival  of  the  fittest  through  the 
struggles  for  existence,  we  have  a  safe  rule  of  con- 
duct which  it  is  well  for  every  nation  to  heed,  for 
too  sweeping  and  too  extensive  and  too  radical 
changes  are  contrary  to  sound  and  progressive 
evolution.  It  may,  however,  take  compulsory  meas- 
ures to  force  recognition  of  something  possessing 
superior  merit  and  which  is  merely  one  step  higher. 
Neither  should  we  discount  the  future  by  taking 
too  many  steps  at  one  time,  but  progress  step  by 
step  even  though  it  may  take  painful  measures  to 
compel  a  nation  to  take  the  very  first  step.  It 
would,  therefore,  be  fatal  to  the  peace,  happiness 
and  orderly  evolutionary  progress  of  a  nation  for 
its  people  or  a  portion  thereof  to  contemplate  tak- 
ing too  many  steps  at  the  same  time,  especially 
when  a  first  step  in  better  and  higher  economics 
is  yet  to  be  taken. 


46  Constructive  Economics — 2nd  Supplement 


PART  III. 


INTRODUCTION  TO  CREDIT. 

Popular  opinions  and  popular  expressions  are  in  most 
instances  entirely  different  from  their  scientific  facts,  for  one 
expresses  what  the  people  believe  or  imagine  wholly  and  sole- 
ly from  outward  appearances,  whereas  the  other  contains  the 
true  facts  ascertained  by  careful  investigations  or  analysis. 

Popular  expressions  are  therefore  misleading  and  danger- 
ous to  the  student  because  by  mental  reflection  these  are  gen- 
erally found  to  be  so  vague,  so  sweeping  and  so  uncertain  as 
to  be  irreconcilable  and  destined  to  lead  the  mind  into  great 
confusion  whenever  an  effort  is  made  to  bring  forth  harmony 
and  order  out  of  their  discords  and  chaos. 

For  centuries  it  was  the  popular  opinion  and  belief  that 
fire,  water  and  air  were  chemical  elements — but  chemists 
knew  better,  these  knew  the  facts. 

A  scientific  work  based  entirely  upon  popular  beliefs, 
fails  not  only  to  accomplish  its  purpose,  but  it  really  does 
worse  than  that — it  unnecessarily  spreads  great  confusion 
among  students. 

The  purpose  of  this  installment  on  the  topic  of  "credit" 
is  to  point  out  with  greater  particularity  the  scientific  func- 
tion thereof,  making  it  thereby  more  readily  possible  to  dis- 
tinguish error  and  confusion  embodied  in  common,  popular 
and  commercial  parlance  from  the  actual  facts  in  existence. 

The  function  of  any  science  is  to  present  only  the  true 
facts  in  order  to  correct  the  errors  of  the  public  as  manifested 
in  and  by  their  common  or  popular  expressions  relating  to  im- 
portant topics. 

It  is  therefore  necessary  for  an  author  to  exercise  the 
greatest  care  in  treating  scientifically  on  any  branch  of  eco- 
nomics so  as  not  to  include  in  his  work  all  those  errors,  con- 
fusions and  inconsistencies  which  are  characteristic  of  all 
popular  or  common  conceptions. 

Economics  has  been  referred  to  in  many  books  as  the 
science  of  wealth,  the  science  treating  on  the  production  and 
distribution  of  wealth,  the  science  of  industrial  relations. 

Economics  as  a  science  should  be  raised  to  the  same  dig- 
nity accorded  other  sciences  by  treating  all  branches  thereof 
only  upon  true,  tried  and  known  facts  which  are  in  existence 
either  fixed  or  in  operation ;  and  in  no  wise  and  in  no  manner 
should  there  be  any  interpolation  of  the  rattle  and  prattle  of 
the  plebians. 


Cbedit  47 


Seligman  in  his  work  on  political  economy  has  made  a 
great  distinction  between  the  economic  and  legal  phase  of 
credit,  claiming  that  the  economic  is  the  scientific  phase  there- 
of whereas  the  ''legal"  represents  the  contractual  phase. 

Principles  of  Economics  1905  by  Edwin  B.  A.  Seligman, 
LL.D.,  McVicker  Prof,  of  Political  Economy,  Colombia  Uni- 
versity. 

Page  419 — "We  must  be  careful  not  to  confuse  the  legal 

with    the    economic    conception Legally,    if    we    part 

with  the  ownership  of  anything,  it  is  a  sale;  if  we  part  with  the 
possession  while  retaining  the  ownership,  it  is  a  loan.  Economi- 
cally, the  essence  of  credit  is  the  temporary  usuauce  of  wealth." 

Page  470 — "A  sale  on  credit  is,  from  the  economic  point 
of  view,  no  sale  at  all.  Legally,  the  ownership  is  transferred 
and  the  payment  is  deferred;  economically,  it  is  a  grant  to  the 
purchaser  of  the  privilege  to  utilize  the  commodity  subject  to 
the  prior  economic  right  of  the  seller." 

The  contract  out  of  which  credit  arises,  establishes  the 
true  status  of  the  parties  by  defining  clearly  their  respective 
rights  or  duties  imposed  upon  them.  The  economic  or  scien- 
tific phase  cannot  be  expected  to  do  otherwise  than  to  state 
the  facts  as  these  are  developed  in  and  by  their  contract.  It 
follows  from  this  that  there  can  be  no  distinction  whatever 
between  the  economic  and  the  legal  or  contractual  phase  of 
credit.  To  state  the  facts  commercially  or  legally  is  to  tell 
the  truth.  And  the  science  of  economics  even  as  other  sciences 
should  be  wholly  and  solely  directed  toward  ascertaining  and 
thereupon  presenting  only  the  various  truths  as  these  are 
found  either  fixed  or  in  operation. 

Law  in  its  widest  sense  is  but  the  expression  of  a  fact 
actually  in  existence. 

Truth  is  but  the  expression  of  a  fact  actually  in  existence. 

The  function  of  a  science  is  to  state  the  truth;  and  no- 
where else  and  in  no  other  manner  is  the  scientist  able  to 
get  at  the  truth  about  industrial  relations  than  by  an  exam- 
ination, investigation  or  diagnosis  of  those  "legal"  contracts, 
verbal  or  written,  expressed  or  implied,  pursuant  to  which  all 
business  of  the  world  is  transacted. 

There  is  not  a  single  business  transaction  which  does  not 
involve  some  legal  agreement,  some  contract,  requiring 

Parties  capable  in  lavr  of  entering  into  a  contract. 
A  lawful  consideration  and  lawful  subject  matter. 
A  valid  proposal  and  an  acceptance  binding  upon  all 

parties. 
And  thereafter  the   performance   of  their   respective 

duties  or  obligations  arising  out  of  such  contract. 

Therefore  science,  law,  and  truth  are  merely  expressions 
of  facts ;  and  these  words  should  be  treated  as  synonyms,  and 
not  as  words  intended  to  convey  different  or  conflicting  ideas. 


48  Constructive  Economics — 2nd  Supplement 


In  as  much  as  all  industrial  relations  arise  out  of  and  are 
conducted  wholly  and  solely  according  to  mutual  agreements, 
it  must  be  evident  that  the  science  of  economics  must  be  lim- 
ited in  its  scope  to  apply  to  and  embrace  only  those  engage- 
ments (contracts)  which  operate  continuously  from  cause  to 
eflfect  whereby  society  lives,  moves  and  maintains  its  exist- 
ence. 

To  base  any  work  upon  common,  popular  or  commercial 
parlance,  opinions,  expressions  or  conceptions — is  to  fail  in 
establishing  it  as  a  scientific  work. 

And  so  the  word  "credit"  in  its  common,  and  commer- 
cial parlance  as  distinguished  from  its  economic  value  forms 
a  most  splendid  example,  showing  the  existence  of  the  great- 
est kind  of  a  breach  between  the  popular  and  the  scientific 
interpretation  thereof. 

Credit  has  been  defined  in  the  book  SOLUTION  on  page 
43  as  follows: 

"A  credit  is  a  right  conferred  upon  a  person  to 
demand  a  full  discharge  of  a  liability  assumed  by 
another  according  to  agreement." 

Principles  of  Political  Economy  1873,  by  John  Stuart  Mill. 

Book  III,  Chapter  XI — "The  functions  of  credit  have  been 
a  subject  of  as  much  confusion  of  ideas  as  any  single  topic  in 
Political  Economy." 

This  misunderstanding  and  confusion  about  the  word 
credit,  arises  entirely  from  a  persistent  endeavor  to  harmonize 
the  errors  of  the  public  with  the  facts  in  existence.  The  errors 
of  the  public  have  arisen  in  their  constant  misuse  of  the  word 
credit  where  "debt"  in  fact  is  the  proper  word,  thereby  making 
credit  a  synonym  of  debt;  making  the  word  credit  take  the 
place  of  the  word  debt. 

I  fully  realize  that  in  my  attempt  to  clear  up  this  mistake 
I  stand  alone  against  an  array  of  authorities  which  have  been 
looked  upon  with  great  respect ;  but  I  feel  that  I  have  at  least 
a  right  to  point  out  where  I  diflfer  and  why  I  dififer. 

I  realize  also  that  thereby  I  am  upsetting  in  a  large 
measure  the  theories  of  the  past  which  like  other  innovations 
create  disturbances;  yet  the  world  in  every  sphere  of  human 
activity  has  only  progressed  to  higher  planes  by  the  benevo- 
lent but  "unwelcome"  guest  of  innovations  creating  disturb- 
ances. 

All  innovations  whether  relating  to  inventions  or  busi- 
ness rules  were  unwelcome  at  first  but  proved  a  blessing 
later  on.    Thus: 


Cbedit  49 

The  advent  of  machinery  was  not  only  viewed  by 
the  wage  earner  with  great  alarm,  but  he  predicted 
wholesale  idleness  resulting  in  poverty,  misery,  and 
great  suffering  for  the  masses. 

Merchants  and  manufacturers  were  always  re- 
luctant in  embracing  better  business  or  productive 
methods,  and  generally  waited  until  forced  to  adopt 
also,  those  innovations  whereby  their  more  progres- 
sive competitors  gained  tremendous  advantages. 

Innovations  have  alw^ays  wrought  changes  and  whenever 
based  upon  sound  principles,  these  in  time  proved  to  be  of 
great  benefit  to  all.  Even  so  has  it  been  with  sciences  where 
discoveries  of  errors  were  made  through  investigation.  These 
discoveries  frequently  disturbed  all  prevailing  logic  and  for 
a  time  resulted  in  still  greater  confusion  until  the  intellectual 
storm  had  passed  and  calm  judgment  thereafter  accepted 
the  new  order  of  things  according  to  the  truths  and  facts 
disclosed. 

It  will,  therefore,  be  my  purpose  to  draw  a  clear  and 
clean  cut  distinction  between  the  popular  conception  of  the 
scope  of  credit  on  the  one  side  and  on  the  other  its  economic 
value  and  function  in  the  field  of  human  aflfairs. 

Roughly  speaking  the  human  fabric  of  the  nation  as  it 
exists  today  is  composed  largely  of  men  engaged  in  produc- 
tion, others  in  distribution  and  still  others  who  comprise  our 
political  servants  charged  with  duties  regulating  the  conduct 
of  all  in  the  interest  of  all. 

The  domestic  commerce  of  a  nation  relates  to  utilities 
either  in  concrete  existence,  or  to  such  as  are  abstract;  in 
other  words,  goods,  etc.,  in  existence  or  on  hand,  or  goods, 
etc.,  not  yet  in  existence  or  not  yet  on  hand. 

It  is  most  important  to  impress  this  principle  firmly  upon 
the  mind  for  it  involves  the  operation  of  natural  laws  such 
as  expressed  by  plus  (+)  or  minus  ( — ),  positive  or  negative. 

Goods  in  existence  or  on  hand  will  hereafter  be  known 
as  or  termed  "concrete,"  while  such  as  are  not  yet  in  ex- 
istence or  not  yet  on  hand  but  expected  to  be  at  some  future 
time,  will  be  designated  "abstract." 

The  commerce  of  the  nation  relates  to  both  concrete  and 
abstract  goods ;  mathematically  expressed  it  deals  in  concrete 
and  abstract  quantities  such  as  plus  and  minus  quantities. 

The  financial  means  of  distribution  in  effecting  exchanges 
likewise  involves  the  use  of  a  money  which  in  its  national 
character  is  either  concrete  or  abstract. 

Coins  and  their  certificates  constitute  concrete  money  be- 
cause these  are  based  upon  bullion  or  metals  in  existence  hav- 
ing intrinsic  and  market  value. 


50  CON8TRUCTI^E    ECONOMICS — 2nD    SUPPLEMENT 

All  Circulating  Notes  of  the  government  and  banks  may 
be  considered  U.  S.  abstract  money  as  these  are  promises  or 
orders  to  pay  (debts),  which  in  some  instances  to  a  very 
large  extent  are  secured  simply  by  other  promises  to  pay,  or 
in  other  instances  are  secured  to  a  much  less  extent  by  con- 
crete reserves  of  coins  or  bullion. 

The  use  of  checks  as  a  medium  of  exchange  constitute 
a  "people's  money"  which  is  likewise  based  upon  an  indebted- 
ness assumed  by  banks,  and  such  checks  will  hereafter  be 
considered  in  the  class  of  abstract  money. 

The  whole  nation  is  maintained  in  its  activities  by  the 
use  of  two  sets  of  distinct  but  opposing  standards.  The  con- 
crete standards  whether  relating  to  goods  or  to  money,  are 
above  the  mathematical  zero.  The  abstract  standards  also 
relating  to  goods  and  money  are  below  the  mathematical 
zero.  Money  based  on  value  (standard  of  value)  is  above 
zero;  money  based  on  a  debt  (standard  of  debt)  is  below 
zero.  Money  based  on  the  standard  of  value  when  in  circu- 
lation is  a  circulating  asset  whereas  money  based  on  the 
standard  of  debt  when  in  circulation  constitutes  a  circulating 
liability. 

To  the  public  there  is  no  difference,  and  they  see  no  dif- 
ference in  money  between  a  circulating  asset  and  a  circulating 
liability.  As  long  as  a  circulating  liability  accomplishes  their 
purposes  for  the  time  being,  they  are  not  interested  to  know 
the  dangers  which  await  them  by  the  use  of  such  abstract 
money. 

When,  however,  financial  storms  begin  to  rage,  then  com- 
plaints may  be  heard  from  them  on  all  sides. 

The  public  give  and  receive  both  concrete  and  abstract 
(mostly  abstract)  money  in  full  satisfaction  which  may  be 
termed  "concrete  satisfaction"  for  exchanges  of  goods,  debts, 
or  other  obligations. 

Goods  bought  on  promises  to  pay  at  some  future  time 
— on  a  debt,  may  be  called  an  "abstract  satisfaction" — a  tem- 
porary satisfaction  which  is  to  be  replaced  by  the  concrete 
of  its  kind. 

A  clear  conception  of  these  mathematical  rules  operating 
in  the  productive,  distributive  and  political  realms  wherein 
the  concrete  are  plus  quantities — quantities  above  zero;  and 
the  abstract  or  minus  quantities — quantities  below  zero,  will 
prove  a  great  step  in  the  direction  of  clearing  up  that  great 
mass  of  confusion  to  be  found  in  most  text  books  treating 
on  political  economy. 

The  following  classifications  of  "means"  of  production  and 
of  distribution  and  the  powers  of  the  government  officials 
may  be  of  service  in  getting  a  more  comprehensive  concep- 
tion of  industrial  life  in  its  daily  operation. 


Cbedit 


51 


ECONOMIC  FUNDAMENTALS. 

PRODUCTION 

Omrned  and  Controlled 

by  Individnala 

CAUSE 

Labor — Creator 

Sundries — Machinery,  Eldgs.,  Power,  etc. 
Raw  Material — Concrete  Matter 
U.  S.  Money 


GOODS 

or 

Conunoditle* 

IQFFKCT 


Instruments 

of 

Means 


Satisfaction 


DISTRIBUTION 

Owned  and  Controlled 

by  Individuals 


People's  Money 

Buying  on  Debt 
.  Selling  on  Credit 


CAUSE 


Concrete 

Abstract 

Checks, 

Drafts,  etc 

Abstract 

Satisfaction 


}  Concrete 
Satisfaction 

1 

EXCHANGES 
EFFECT 


Instruments 

of 

Means 


Goods,  etc.   I  Concrete 
(  Abstract 
Sundries — Relating  to  Delivery 


Satisfaction 


U.  S.  Money 

People's  Money 

Buying  on  Debt 
.Selling  on  Credit 


Concrete 

Abstract 

Checks, 

Drafts,  etc. 

Abstract 

Satisfaction 


Concrete 
Satisfaction 


GOVERNMENT   OFFICIALS 

r  Establish — Money 


CAUSE 


EFFECT 
PUBLIC   OPINION 
(Judgment) 


Concrete 
Abstract 
Powers  ■{  Regulate — Conduct  of  All 

[Tax — Property,   etc. 

It  will  be  observed  that  money  as  a  means,  and  debt 
as  a  means  or  credit  as  a  means  are  so  essential  and  important 
in  every  phase  of  human  life  that  they  are  to  be  found  per- 
meating every  sphere,  nook  and  corner  in  both  the  productive 
as  well  as  the  distributive  realms. 

So  important  are  their  uses  that  they  determine  on  the 
largest  scale  possible  the  results  ranging  in  effect  from  the 
humblest  individuals  up  to  and  including  the  nation  as  a 
whole.  These  results  make  life  a  joy  or  one  of  sorrow,  a 
struggle  or  one  of  ease,  a  life  of  usefulness  or  one  to  be  de- 
tested. 

When  our  economists  will  reach  down  to  the  very  bot- 
tom of  our  money  in  use  (including  checks)  and  begin  to 
watch  its  operations  through  all  the  avenues  of  life  from  the 
Alpha  to  the  Omega,  and  then  also  diagnose  and  analyze  its 
functions,  character  and  qualities — these  will  finally  discover 
the  creative  cause  of  all  ills  to  be  our  "money,"  nothing  else 
but  our  money. 

TO  BUY  MERCHANDISE  ON  A  PROMISE  TO  PAY 
(Erroneously  called  "On  Credit"). 

To  buy  merchandise  in  consideration  of  a  promise  to  pay 
for  same  at  a  later  date  requires  a  contract.  This  is  usually 
evidenced  by  a  written  or  verbal  order  of  the  vendee  for  the 
purchase  of  specific  merchandise  together  with  his  expressed 


52  Constructive  Economics — 2nd  Supplement 

or  implied  promise  to  pay  for  same  at  a  definite  time,  and  the 
acceptance  by  the  vendor  of  all  such  terms  and  conditions. 

In  common  and  commercial  parlance  it  is  customary  to 
designate  A  (vendee)  v^ho  orders  merchandise,  as  the  debtor 
v^hereas  B  (vendor)  v^ho  accepted  such  order  is  known  only 
as  the  creditor. 

However,  this  is  only  one-half  of  the  full  story  or  one- 
half  of  the  facts  developed  during  the  execution  of  their  con- 
tract. 

In  economics,  or  according  to  an  acceptance  of  a  contract, 
A  is  at  first  a  creditor  having  a  "credit"  with  B  relating  to 
delivery  of  specific  merchandise.  A  therefore  has  a  right  con- 
ferred upon  him  to  demand  delivery  of  such  merchandise; 
and  any  failure  or  refusal  on  the  part  of  B  to  comply  with 
the  terms  and  conditions  of  such  contract,  gives  A  the  right 
to  an  action  at  law  against  B. 

B  at  first  is  a  debtor  having  obligated  himself  by  his  ac- 
ceptance of  A's  order  to  deliver  merchandise  of  a  specific 
kind  and  character  within  a  certain  time  or  times. 

The  first  step  in  this  commercial  relationship  as  estab- 
lished economically  in  and  by  their  contract  (legally)  is  that 

A  is  a  creditor  whose  credit  relates  to  merchandise. 
B  is  a  debtor  whose  debt  relates  to  the  same  merchan- 
dise. 

The  right  of  A  to  receive  merchandise  from  B,  and  the 
duty  of  B  to  deliver  such  merchandise  as  per  contract,  con- 
stitutes the  first  step  which  must  be  taken  by  both  before 
the  remaining  step  is  possible. 

Upon  delivery  of  the  merchandise  by  B,  and  its  accept 
ance  by  A,  the  first  step  has  been  taken,  and  the  credit  of 
A  has  been  satisfied;  for  instead  of  credit  (the  right  to  de- 
mand) he  now  has  merchandise,  and  the  debt  of  B  has  been 
automatically  discharged;  and  out  of  this  partial  performance 
of  the  contract,  a  new  or  final  relationship  arises  which  at 
this  time  refers  to  a  money  payment  as  follows : 

A  is  now  a  debtor  whose  debt  relates  to  a  certain 

amount  of  money. 
B  is  now  a  creditor  whose  credit  relates  to  the  same 

amount  of  money. 

It  follows  from  this  that  the  parties  to  every  contract 
during  their  reciprocal  performances  pass  through  both  stages 
of  being  each  respectively  a  debtor  and  creditor,  and  vice 
versa. 

There  is  as  much  difference  between  credit  and  a  debt  in 
any  phase  of  a  contract  as  there  is  between  the  east  and  the 
west,  for  it  takes  at  least  two  different  persons  in  order  to 
establish  each  reciprocal  relationship  of  debtor  and  creditor. 


Credit  53 

In  a  contract  of  this  kind  the  obligations  of  one,  are  the  very 
opposite  to  those  of  the  other. 

One  agrees  to  part  with  merchandise;  he  is  therefore 
a  debtor. 

Upon  delivery  of  such  merchandise  he  thereupon  be- 
comes a  creditor,  and  not  before  that  time;  he  is 
thereupon  entitled  to  demand  payment  according 
to  agreement. 

The  other  has  at  first  a  right  to  demand  delivery  of 
merchandise  as  ordered;  he  is  therefore  a  creditor. 

Upon  receipt  and  acceptance  of  such  merchandise  he 
thereupon  becomes  a  debtor,  and  not  before  that; 
and  he  is  accordingly  obligated  to  make  payment 
as  agreed. 

Credit,  no  matter  at  whatever  step  or  stage  of  a  contract 
it  may  exist,  or  to  whom  of  the  parties  thereto  it  attaches,  or 
how  it  arises  or  whatever  it  refers  to  (merchandise,  labor, 
money,  etc.),  such  credit  always  consists  of  a  right  conferred 
upon  its  claimant  to  demand  a  full  discharge  of  that  liability 
which  another  assumed  under  and  pursuant  to  the  terms  and 
conditions  of  a  contract. 

In  the  absence  of  cash  the  basis  on  which  A  can  buy  and 
get  merchandise  from  B,  is  that  A  must  be  able  and  willing  to 
assume  a  debt.  The  debt  of  A  must  be  considered  by  B  as 
a  risk  which  B  can  safely  take  as  security  under  the  pre- 
vailing business  rules  and  conditions. 

A  is  able  to  get  the  merchandise  of  B  only  upon  the  basis 
of  a  debt — upon  A's  promise  to  pay  at  some  future  time. 

There  are  only  two  methods  or  forms  of  buying  mer- 
chandise : 

One  is  to  buy  and  pay  cash,  the  other  is  to  buy 
and  owe  for  it — ^be  in  debt. 

To  say  that  goods  are  bought  "on  credit"  is  to  introduce 
a  third  form  of  buying  which  economic  science  will  not  tol- 
erate because  no  contract  of  purchase  can  provide  for  such 
or  other  conditions ;  therefore  no  facts  can  arise  justifying  a 
use  of  the  expression  "on  credit." 

Cash  and  credit  in  their  economic  use  are  classified  as  re- 
sources. Cash  may  here  be  considered  as  a  concrete  resource, 
whereas  credit  can  only  be  an  abstract  one,  for  the  reason  that 
such  consists  only  of  a  legal  right  to  demand,  and  this  demand 
may  be  for  merchandise  or  anything  else  as  well  as  cash. 

Whenever  merchandise  is  bought  there  immediately 
arises  the  legal  obligation  (a  debt)  to  pay  for  it;  and  if  this 
debt  is  paid  upon  delivery  of  goods,  we  call  that  a  cash  sale. 
The  mere  fact  that  the  buyer  does  not  pay  upon  delivery  but 
promises  to  do  so  in  thirty  or  sixty  days  does  not  change  or 
alter  the  fact  of  debt.  Such  debt  is  simply  prolonged  from  a 
few  seconds  as  in  the  case  of  a  cash  sale,  to  thirty  or  sixty 
days  according  to  agreement. 


54  CONSTRUCTITE    ECONOMICS 2nD    SUPPLEMENT 

The  privilege  of  extending  this  debt  from  a  few  seconds 
to  a  longer  time  is  embodied  in  the  contract  made  to  that  ef- 
fect. It  is  a  purchase  based  upon  a  debt  or  upon  the  exten- 
sion to  thirty  or  sixty  days  from  that  shortest  kind  of  a  debt 
which  arises  in  every  cash  sale. 

A  purchase  on  credit  is  according  to  economics  an  utter 
impossibility  because  credit  cannot  be  made  to  mean  also  a 
debt.  A  purchase  based  on  a  debt  is  the  only  converse  of  a 
purchase  made  for  cash.  I  repeat  a  debt  and  that  only  can 
be  the  converse  of  a  purchase  made  for  cash  even  as  there 
are  only  two  forces  in  operation  in  nature  wherein  one  is  posi- 
tive and  the  converse  thereof  is  the  negative. 

There  are  no  other  forces,  signs  or  characters  in  use  or 
in  operation ;  it  is  either  one  or  the  other.  Each  has  a  definite 
use  or  value  so  that  it  is  not  possible  to  have  one  assume  also 
the  role  of  another. 

It  is  only  by  using  the  word  credit  in  a  sense  where  debt 
is  really  intended — in  short  making  credit  mean  the  same 
thing  as  a  debt  which  justifies  the  popular  expression  of  "on 
credit." 

The  public  in  their  common  or  commercial  parlance  with 
reference  to  purchases  make  no  distinction  between  debt  and 
credit;  and  by  their  constant  use  of  the  word  credit  in  the 
sense  that  it  represents  a  debt,  have  accustomed  themselves 
to  consider  such  use  as  popular  harmony  when  in  fact  such 
constitutes  a  scientific  discord. 

In  common  and  commercial  parlance,  it  is  customary  to 
say  that  A  buys  on  credit  and  at  the  same  time  consider  him 
a  debtor.  To  stop  right  here  and  carefully  consider  this  popu- 
lar view,  will  serve  to  point  out  a  great  inconsistency. 

In  the  first  place  remember  that  a  credit  belongs  exclu- 
sively to  a  creditor,  and  that  a  debt  always  relates  to  a  debtor. 

This  is  so  exceedingly  fundamental  that  no  exceptions 
or  even  doubts  are  permissible.  If,  therefore,  A  buys  any- 
thing he  must  buy  it  either  on  the  cash  he  now  has  or  that 
cash  which  he  expects  to  have  in  the  future.  His  right  or 
qualifications  for  buying  relate  to  himself  and  not  to  anyone 
else.  The  interval  between  his  promise  to  pay  and  the  actual 
payment  makes  him  a  debtor  and  his  promise  constitutes  the 
debt.  .So  far  as  A  is  concerned  this  purchase  depends  upon 
himself — upon  his  own  ability  either  to  pay  cash  or  in  the 
absence  of  such,  upon  his  promise  to  pay,  thereby  becoming  a 
debtor.  A  cannot  buy  on  the  strength  of  a  right  which  B 
may  have  or  acquire  by  means  of  an  agreement  with  A.  The 
right  of  B  to  demand  payment  is  by  no  means  the  same  as  the 
duty  of  A  based  on  his  promise  to  pay  even  though  both  agree 
on  the  specific  merchandise  which  is  to  exchange  hands.  A 
cannot  purchase  upon  a  right  to  receive  which  belongs  ex- 


Obbdit  65 

clusively  to  B.  A  must  buy  upon  his  duty  to  give.  To  say  A 
buys  on  credit  is  to  wrongfully  use  the  right  of  B — the  credit 
of  B. 

Legally,  economically  or  contractually  or  according  to 
the  facts  there  can  be  no  such  use  made  of  the  word  credit 
as  to  mean  the  same  thing  as  debt.  When,  therefore,  in  com- 
mon parlance  the  word  credit  in  some  instances  is  used  where 
debt  is  the  proper  word  because  the  latter  expresses  the  facts ; 
and  in  other  instances  the  word  credit  is  used  rightfully  to 
represent  a  demand  of  its  creditor — it  should  not  be  surpris- 
ing to  the  scientists  that  there  is  a  great  misunderstanding 
and  confusion  in  evidence  with  reference  to  the  word  credit. 

A  large  number  of  books  treating  on  economics  fail  to 
contain  this  most  important  and  generally  perplexing  topic 
of  credit  which  relates  to  exchanges  of  labor  and  commodi- 
ties for  which  only  promises  of  payments  are  given  maturing 
at  different  periods  in  the  future. 

However,  some  writers  have  ventured  entering  into  this 
field,  and  from  a  few  of  the  books  which  are  accessible  I  am 
presenting  the  fruits  of  their  labor. 

There  can  be  but  one  definition  of  the  word  credit,  and 
such  must  express  its  economic,  its  contractual  and  therefore 
its  legal  sense  and  value. 

In  the  following  citations  it  will  be  observed  that  their 
authors  in  defining  the  word  "credit,"  have  in  fact  defined 
merely  the  word  "debt :" 

Money  and  Banking  1914  by  John  T.  Holdsworth,  Ph.D., 
Dean  of  the  School  of  Economics  and  Prof,  of  Finance,  University 
of  Pittsljnrgh. 

Page  98 — "In  short,  credit  is  a  promise  to  pay  money." 

Political  Economy  1892  by  Chas.  S.  Devas,  Examiner  in 
Political  Economy  at  the  Royal  University  of  Ireland.  Author 
of  Ground  Work  in  Economics. 

Page  283 — "But  first,  what  is  credit?  Putting  aside  the 
vague,  popular  and  wide  meaning  of  the  term,  let  us  use  it  in 
the  strict  and  narrow  sense  to  mean  agreed  postponement  of 
payments  in  currency." 

Principles  of  Economics  1913  Henry  R.  Seager. 

Page  341 — "Credit,  or  a  promise  to  pay  at  a  future  time 
for  a  valuable  consideration  received  in  the  present  is  probably 
as  old  as  the  practice  of  exchange." 

"This  is  now  so  universal  that  little  or  no  exaggera- 
tion is  involved  in  defining  credit  as    'A  promise  to  pay.'  " 

Principles  of  Economics  1908  by  Edwin  R.  A.  Seligman, 
LL.  McVicker,  Prof,  of  Political  Economy,  Columbia  University. 

Page  519 — "Credit  thus  virtually  becomes  a  contract  for  the 
future  delivery  of  money,  or  a  short  sale  of  money,  and  credit  is 
thus  best  discussed  in  connection  with  money." 

In  instances  where  textwriters  have  attempted  to  define 
credit  "more  broadly"  (as  they  call  it),  these  have  in  fact 
stated  the  two  elements  of  the  contract  out  of  which  credit 
arises ;  in  other  words,  they  have  defined  that  particular  kind 
of  a  contract  which  embraces  credit,  but  have  by  no  means 
defined  "credit."  Credit  is  only  one-half  of  the  contract  where- 
as the  debt,  duty  or  obligation  constitutes  the  other. 


56  Constructive  Economics — 2nd  Supplement 


Money  and  Banking  1916  by  William  A.  Scott,  Prof,  of 
Political  Economy  in  the  University  of  Wisconsin. 

Page  92 — "An  exchange  transaction  in  which  one  person 
parts  with  goods  or  valuables  on  condition  of  receiviiig  a  return 
for  them  in  the  future." 

Money  and  Currency  1905  by  Joseph  F.  Johnson,  Prof,  of 
Political  Economy  in  N.  Y.  University  and  Dean  of  the  School 
of  Commerce. 

Page  4 — "Broadly  defined,  credit  is  the  power  to  get  goods 
in  exchange  by  giving  a  promise  or  contract  to  deliver  an  equlva^ 
lent  at  some  future  time." 

"The  student,  however,  must  never  lose  sight  of  the  rela- 
tionship between  credit  and  money.  Credit  and  money  are  not 
two  different  things:  Credit  indeed  is  not  a  thing  at  all,  but 
merely  the  name  given  to  a  common  and  important  use  of 
money." 

Mr.  Johnson  states  that  "credit  and  money  are  not  two 
different  things."  According  to  that  statement  credit  and 
money  are  the  same  things.  Then  he  goes  on  to  say  that 
''credit  indeed  is  not  a  thing  at  all."  If,  therefore,  credit  is 
not  a  thing  at  all,  then  money  is  likewise  not  a  thing  at  all, 
and  both  "credit  and  money  are  not  two  different  things;" 
both  are  not  things  at  all,  according  to  his  logic. 

The  Value  of  Money  1917  by  B.  M.  Anderson,  Jr.,  Ph.D., 
Asst.  Prof,  of  Economics,  Harvard  University. 

Page  459 — "Definition  at  the  beginning  of  a  study  is  fre- 
quently a  fetter,  rather  than  an  aid  to  thought." 

Page  461 — " Is  credit  capital?    Is  an  increase  in  credit 

an  increase  in  values?  The  last  two  of  these  questions  imply 
that  we  have  a  definition  of  credit." 

It  would  have  been  most  interesting  to  have  had  Mr. 
Anderson  give  us  the  definition  of  credit,  or  at  least  to  have 
favored  us  with  the  "implication"  so  that  we  might  have  some 
idea  about  his  conception  of  credit. 

Unfortunately  I  am  myself  unable  to  reconcile  any  im- 
plications which  might  arise  from  the  two  questions  asked, 
with  the  definition  of  credit  conceived  by  me. 

In  contrast  with  Mr.  Anderson's  conception  of  credit  by 
"implication,"  I  am  going  to  present  an  excerpt  taken  from 
the  book  of  Mr.  Simon  Newcomb : 

Principles  of  Political  Economy  1886  by  Simon  Newcomb, 
Ph.D.,  LL.D.,  Prof,  of  Mathematics  U.  S.  Navy;  Prof.  Johns- 
Hopkins  University. 

Page  52 — "The  right  held  by  the  owner  of  credit  is  that 
of  requiring  from  some  other  person  or  owner  at  a  future  time 
the  payment  of  a  designated  sum  of  money." 

But  the  right  possessed  by  the  creditor  is  apparently  neither 
the  ownership  of  anjrthing  which  comes  under  our  definition  of 
wealth,  nor  that  of  any  material  object. 

The  right  to  demand  money  from  another  party  is  not  the 
same  thing  as  the  ownership  of  money." 

I  am  going  to  answer  Mr.  Anderson's  two  questions  with 
implications  to  be  drawn  from  two  questions  which  I  am 
hiere  presenting: 

Is  a  man  who  is  engaged  to  be  married,  a  married  man? 
Is  the  right  to  become  married  at  some  future  time  the  same 
as  being  already  married?  There  has  been  many  a  slip  'twixt 
the  cup  and  the  lip ;  and  many  engagements  were  broken 
either  voluntarily  or  by  death  which  never  resulted  in  mar- 


Cbebit  57 

riage.  In  short,  the  right  to  demand  something  is  Hke  birds 
in  the  bushes  (they  may  fly  away)  while  the  birds  in  the  cage 
or  in  the  hand  constitute  a  concrete  asset — capital. 

An  Introduction  to  Political  Economy  1901  by  Bichard  T. 
Ely,  Prof,  of  Political  Economy  and  Director  of  the  School  of 
Economics  and  Political  Science  in  the  University  of  Wisconsin. 

Page  194 — "Prof.  Knies  has  defined  credit  as  merely  a 
commercial  transaction  between  two  parties  in  which  the  service 
performed  or  the  value  rendered  by  the  one  falls  in  the  present, 
and  the  counter  service  or  counter  value  of  the  other  in  the 
future." 

But  this  definition  seems  to  err  on  the  side,  by  neglecting 
the  element  of  confidence  which  enters  into  credit  transactions. 

Mr.  Ely's  criticism  of  Knies'  definition  of  "credit"  pre- 
sents a  very  loose  and  exceedingly  popular  conception  of 
credit  as  distinguished  from  every  economic  or  legal  credit 
which  in  fact  has  a  definite  place  and  function  in  that  contract 
out  of  which  it  arises. 

Confidence  is  an  element  needed  in  all  dealings  and  doings 
among  men  whether  these  be  merely  moral,  legal  or  contrac- 
tual, and  therefore  forms  no  greater  part  in  a  contract  em- 
bracing credit  than  in  any  other  contract  or  even  in  a  moral 
obligation.    All  moral  obligations  rest  entirely  on  confidence. 

CREDIT  CONTINUED. 

The  topic  of  "credit"  as  used  in  common  and  popular 
parlance  deserves  much  more  consideration  than  that  accord- 
ed in  the  preceding  pages ;  and  for  that  reason  I  am  continu- 
ing it  in  an  endeavor  to  present  it  more  fully  by  employing 
different  methods  or  illustrations;  in  other  words,  presenting 
it  from  different  angles  in  order  that  a  better  view  of  the 
whole  topic  may  be  obtained. 

To  buy  goods  on  "credit"  (debt)  is  a  popular  expression — 
not  an  economic  or  scientific  one.  The  word  credit  is  in  fact 
used  in  the  place  and  stead  of  debt. 

To  buy  goods  for  cash,  is  to  get  the  goods  and  own  them. 

To  buy  goods  and  not  pay  for  them  at  the  time,  is  to  get 
the  goods  and  own  them,  but  owe  the  purchase  price  for  them, 
be  in  debt.  Such  constitutes  a  purchase  on  a  debt,  not  on 
credit. 

The  "debt"  is  the  basis  and  foundation  upon  which  goods 
can  be  bought  with  the  payment  deferred. 

The  very  first  inquiry  made  by  B,  a  wholesaler  when  A, 
a  retailer,  who  is  a  total  stranger,  seeks  to  purchase  goods  on  a 
"promise  to  pay  later"  is  directed  toward  A  demanding  of 
him  a  statement  of  how  much  he  owns  (resources)  and  what 
and  whom  he  owes  (liabilities). 

The  purpose  of  this  statement  is  to  ascertain  therefrom 
whether  A  has  enough  property  or  capital  which  would  justify 
its  further  incumbrance ;  in  other  words,  is  it  possible,  accord- 


58  CONSTEUCTIVE   ECONOMICS — 2nD    SUPPLEMENT 

ing  to  the  prevailing  business  rules,  for  A  to  assume  another 
debt  without  endangering  his  (A's)  business?  A  must,  there- 
fore, be  prepared  to  show  that  he  can  safely  assume  a  debt 
and  discharge  it  promptly  when  due  before  B  will  ever  con- 
sent to  let  his  own  goods  pass  into  the  hands  of  A.  B  is  only 
willing  to  part  with  his  goods  after  he  has  found  A  fully 
capable  of  assuming  a  debt  which  latter  constitutes  an  en- 
cumbrance upon  his  entire  possessions  excluding  such  as  are 
by  law  exempt. 

The  requirements  demanded  of  A  relate  entirely  to  his 
ability  of  entering  into  debt.  It  is  a  question  of  debt  pri- 
marily, and  B,  fully  satisfied  that  A  may  safely  jeopardize 
his  business  to  the  extent  of  such  debt,  B  is  thereupon  will- 
ing to  part  with  his  goods.  It  is  not  on  the  credit  of  A,  but 
upon  the  debt  which  A  may  safely  assume,  which  forms  the 
legal  and  moral  consideration  for  the  purchase  of  goods  by  A. 
It  is  a  purchase  (based)  on  a  debt  and  not  a  purchase  on  a 
credit. 

There  are  only  two  ways  in  which  title  to  goods  can  be 
obtained :  One  is  by  paying  cash,  satisfying  a  mutual  ex- 
change ;  whereas  the  other,  by  a  promise  to  pay  cash  at  some 
future  time — purchasing  on  debt — owing  a  debt. 

In  the  last  named  instance  goods  are  bought  on  the 
''standard  of  debt"  not  "on  credit." 

In  popular  parlance  we  say  that  to  buy  goods  on  credit 
is  to  be  in  debt ;  in  that  case  credit  is  synonymous  with  debt. 
In  economics,  or  according  to  the  true  facts,  to  buy  goods  on 
debt  is  to  be  in  debt.  When,  therefore,  textwriters  have 
stated  that  "credit  is  a  promise  to  pay"  these  have  recognized 
the  fact  that  the  purchase  of  goods  in  exchange  for  a  promise 
to  pay,  is  to  be  "in  debt."  Yet  these  have  used  the  popular  ex- 
pression of  credit  to  convey  the  idea  of  debt. 

If  credit  is  a  promise  to  pay,  then  what  is  a  debt?  Sure- 
ly debt  and  credit  are  not  one  and  the  same  thing. 

To  buy  goods  for  cash  is  to  get  the  goods.  To  buy  goods 
and  not  pay  for  them  at  the  time  is  to  get  goods  and  owe 
for  them — be  in  debt.  The  debt  takes  the  place  of  cash.  The 
debt  is  the  consideration  upon  which  goods  are  purchased 
just  as  ca,sh  is  the  consideration  upon  which  goods  are  bought. 
There  is,  however,  as  much  difference  between  these  two  con- 
siderations as  there  is  between  daylight  and  darkness.  Dark- 
ness is  merely  the  absence  of  light.  Financial  daylight  or 
cash  satisfies  the  cash  seller.  Financial  darkness  satisfies  the 
seller  if  in  the  ordinary  and  due  course  of  business  he  finds  it 
possible  for  the  buyer  to  emerge  within  a  certain  time  from 
his  financial  darkness  into  financial  daylight. 

Cash  represents  a  positive  quantity  used  to  effect  ex- 
changes.   A  debt  represents  a  negative  quantity  also  capable 


Cbedit  59 

of  effecting  exchanges.  Cash  effects  exchanges  free  from 
any  obligations.  A  debt  effects  exchanges  requiring  a  full 
discharge  of  its  obligation  according  to  the  terms  and  condi- 
tions thereof. 

Exchanges  are  therefore  possible  by  two  different  and 
opposing  means,  whereof  cash  in  the  one  instance  is  given  in 
satisfaction  while  in  the  other  instance  a  promise  to  pay  is 
given,  a  debt  is  assumed. 

In  mathematics  we  have  plus  quantities  and  we  have 
also  minus  quantities ;  and  the  one  is  the  very  opposite  of 
the  other.  So  that  it  makes  a  vast  difference  in  the  result 
whether  we  are  working  with  plus  quantities  or  whether  our 
operations  are  confined  to  negative  quantities. 

The  principle  involved  in  mathematics  applies  with  equal 
force  to  the  principles  employed  in  industrial  relations.  We 
are  either  dealing  on  a  plus  or  cash  or  financial  daylight  basis, 
or  deaHng  on  a  minus  or  debt  or  financial  darkness  basis. 

A  credit  belongs  to  its  creditor  just  as  a  debt  belongs  to 
its  debtor.  Nevertheless  when  A  purchased  and  received 
goods  from  B  upon  a  promise  to  pay  at  some  future  time — 
the  credit  of  B  consists  of  the  right  to  demand  from  A  the 
payment  of  his  debt  at  a  proper  time.  The  credit  of  B  is  not 
a  promise  to  pay ;  on  the  contrary,  it  is  a  right  to  demand 
payment.  The  debt  of  A  is  his  promise  to  pay  money  to  B. 
The  purchase  of  merchandise  is  based  entirely  on  the  debt. 
Merchandise  is  therefore  n.ot  purchased  on  credit  but  on  debt. 
The  consideration  of  the  purchase  rests  entirely  upon  a  debt 
which  the  debtor  owes,  while  the  creditor  possesses  the  right 
to  demand  or  enforce  payment  of  that  debt. 

There  is  only  one  element  of  the  contract  remaining  un- 
fulfilled with  reference  to  both  credit  and  debt  whenever  the 
merchandise  of  B  is  delivered  to  A,  the  debtor;  and  that  ele- 
ment consists  of  the  debt ;  so  that  according  to  the  contract — 
according  to  law,  according  to  the  facts,  and  finally,  accord- 
ing to  science  or  economics — "merchandise"  is  not  and  can- 
not be  bought  on  credit  but  is  bought  on  debt — on  the  basis 
of  a  debt — on  the  standard  of  a  debt. 

Again,  credit  belongs  exclusively  to  the  creditor. 

Debt  belongs  exclusively  to  the  debtor. 

Therefore  a  debtor  has  no  right  in  law  or  in  fact  to  use 
the  word  ''credit"  belonging  exclusively  to  his  creditor.  By 
appropriating  to  his  own  use  he  is  thereby  making  the  word 
"credit"  stand  in  the  place  of  and  to  answer  also  for  the  word 
"debt." 

Such  an  unwarranted  use  of  the  word  credit  is  sure  to 
create  great  confusion.  It  is  not  possible  to  play  both  hot 
and  cold  when  in  and  by  its  nature  and  operation  it  can  be 
but  one  of  these.     In  common  parlance  with  reference  to  pur- 


60  Constructive  Economics — 2nd  Supplement 

chases,  credit  is  both  credit  and  debt,  but  in  law  and  under 
every  contract  it  is  only  one  thing,  the  legal  power  to  demand 
— the  legal  right  to  receive. 

Again,  in  science,  credit  must  have  a  definite  place  and 
meaning.  It  cannot  mean  one  thing  at  one  time  and  at  another 
be  something  entirely  different,  in  view  of  the  fact  that  credit 
in  every  instance  arises  out  of  a  contract,  and  confers  a  right 
to  demand  something  of  another  which  that  other  has  agreed 
to  furnish  according  to  the  terms  of  a  certain  contract. 

A  merchant  who  has  *'sold"  goods  on  credit,  has  a  right 
conferred  upon  him  to  demand  something  of  his  debtor. 

Surely  it  ought  to  seem  illogical  to  say  that  the  pur- 
chaser has  bought  on  '"credit,"  when  in  fact  he  is  the  debtor. 

It  is  not  possible  to  do  both  *'buy  and  sell"  on  credit. 

If  it  is  right  to  sell  "on  credit"  (which  it  is),  then  it  must 
be  wrong  to  buy  on  credit.  The  relationship  between  debtor 
a'nd  creditor  is  established  between  the  buyer  and  the  seller; 
whereby  the  seller  is  the  creditor,  therefore  the  buyer  is  the 
debtor. 

The  creditor's  sale  is  based  upon  his  demand;  he  is  there- 
fore a  creditor.  The  debtor's  purchase  is  based  upon  his  debt ; 
he  is  therefore  a  debtor. 

Custom  has  made  this  erroneous  use  of  the  word  credit 
seem  and  sound  like  pure  harmony ;  and  even  economists  have 
been  misled  by  this  apparent  "harmonious  discord,"  and  these 
have  therefore  failed  to  discover  the  error  in  and  by  the 
wrongful  use  of  the  word  credit  when  applied  to  purchases. 

A  purchaser  must  be  able  to  buy  in  his  own  right,  and 
this  right  is  based  upon  his  own  ability  to  assume  a  debt. 
He  cannot  buy  on  the  right  of  the  seller  who  sells  on  credit. 

It  certainly  would  not  be  right  to  say  that  a  seller  sells 
on  a  debt  when  in  fact  he  sells  on  credit.  If  the  seller  sold 
on  debt  then  he  himself  would  be  a  debtor,  be  in  debt,  all  of 
which  is  physically  impossible.  For  the  same  reason  it  is 
wrong  to  say  that  a  buyer  purchases  his  goods  on  credit  when 
in  fact  he  buys  on  his  debt,  on  a  debt. 

The  seller  when  a  creditor,  sells  on  a  right  to  demand. 
The  buyer  when  a  debtor  buys  on  a  (promise  to  pay) 

debt. 
Therefore  goods  sold  on  a  right  to  demand  payment 

are  sold  "ON  CREDIT." 
Therefore  goods  bought   on   a  promise  to   pay,  are 

bought  "ON  DEBT." 

I  am,  however,  much  pleased  to  state  that  there  are  men 
other  than  textwriters — men  who  do  not  claim  to  be  econo- 
mists— men  who  have  not  only  grasped  the  economic  value 
of  credit,  and  what  it  really  is,  but  defined  the  word  credit 
correctly  at  least  in  principle. 


Credit  61 


Their  definition  and  conception  of  credit  was  formulated 
while  engaged  in  the  practical  fields  of  life  where  credit  to 
them  was  not  an  abstract  thing  of  theory  or  imagination  but 
where  it  was  in  evidence  as  a  concrete  fact.  These  men  have 
distinguished  themselves  as  true  philosophers  in  that  par- 
ticular, upon  whose  judgment  and  wisdom  it  is  safer  to  rely 
than  on  statements  and  writings  consisting  chiefly  of  theories 
about  credit  conceived  in  the  minds  of  progenitors  and  care- 
fully conserved  by  copious  repetitions,  none  of  which  are  in 
true  accord  with  the  economic  or  contractual  properties  of 
credit.    I  refer  the  reader  to  the  following: 

Cyclopedia  of  Law  and  Procedure,  Vol.  II. 

Page  1191 — ^"In  legal  parlance,  and  in  the  sense  in  which 
it  is  used  in  the  constitution,  chooses  in  action,  things  incorporeal, 
'consisting  in  right  of  one  person  to  demand  and  recover  from 
another,  a  sum  of  money  or  other  things  in  possession.'  " 

It  is  the  judge  on  the  bench  who  in  the  actual  discharge 
of  his  duties  has  seen,  viewed,  watched,  weighed,  measured, 
diagnosed,  DEFINED  "credit,'*  as  few  teachers  and  text- 
writers  have  ever  done. 

ANOTHER  POPULAR  MISUSE  OF  THE  WORD 
CREDIT. 

The  word  credit  is  ofttimes  improperly  used  and  gener- 
ally confused  with  "qualifications  for  incumbrances"  (ability 
to  assume  a  debt),  upon  which  money  may  be  borrowed  or  a 
purchase  may  be  based;  thus:  Where  a  municipality,  pur- 
suant to  statutes  and  ordinances,  has  a  right  to  incumber  its 
taxable  wealth  as  evidenced  by  unsold  bonds  for  the  purpose 
of  getting  cash — it  is  sometimes  stated  that  such  municipality 
has  a  credit.  As  a  matter  of  fact  all  it  has  is  the  power  of 
issuing  bonds  (evidences  of  indebtedness)  up  to  a  definite  limit 
which  qualifies  such  municipality  to  assume  a  debt. 

"To  have  cash,  or  to  be  qualified  to  borrow  cash 
are  two  essentially  different  facts." 

To  be  qualified  or  entitled  to  borrow  cash,  requires  no 
contract. 

To  obtain  cash  requires  a  contract.  It  is  the  same  with  a 
merchant  who  may  possess  every  qualification  for  borrow- 
ing; but  such  qualifications  amount  to  nothing  unless  he  at- 
tempts to  make  use  of  them ;  and  in  order  to  make  use  of 
them  he  must  enter  into  a  contract  whereby  he  assumes  a 
debt. 

In  common  parlance  it  is  said  of  this  merchant  that  he 
has  a  credit  when  in  fact  he  has  nothing  other  than  qualifi- 
cations to  enter  into  debt. 


62  CONSTBUCTIVE    ECONOMICS — 2nD    SUPPLEMENT 

In  common  parlance  it  is  stated  that  a  municipality  has 
a  credit  when  as  a  matter  of  fact  all  it  possesses  is  qualifica- 
tions to  assume  a  debt. 

There  would  be  just  as  much  sense  and  propriety  in  call- 
ing every  bachelor  (duly  qualified  to  marry)  a  husband,  as 
there  is  in  applying  the  term  credit  to  those  who  possess 
qualifications  to  borrow  money  or  buy  goods  on  a  promise 
to  pay. 

To  be  a  bachelor  requires  no  contract. 

To  be  a  husband  requires  a  marriage  contract. 

To  be  entitled  to  borrow  requires  no  contract.  ^ 

To  be  a  debtor  requires  a  contract. 

Only  a  creditor  can  have  a  credit. 

The  only  instance  that  a  municipality  can  have  credit, 

is  when  such  municipality  has  sold  its  bonds  but 

has  not  colliected  its  money. 

SELL  ON  CREDIT. 

The  use  of  the  word  credit  in  its  relation  to  a  sale  is  cor- 
rect both  in  popular  and  scientific  conception. 

The  seller  has  only  two  methods  of  transferring  title  to 
his  merchandise : 

One  is  based  upon  an  immediate  demand  for  cash 

(cash  sale). 
The  other  is  based  upon  a  right  to  demand  cash  at  a 

later  time  (sale  upon  credit). 

To  say  B  sold  to  A  on  credit  is  therefore  perfectly  cor- 
rect and  proper,  for  such  gives  B  a  right  to  ''demand"  pay- 
ment. But  a  right  to  demand  money  is  not  the  same  thing  as 
a  "duty"  to  pay.  A  cannot  buy  upon  the  credit  of  B.  A 
must  buy  upon  the  basis  of  his  promise  to  pay,  upon  the 
basis  of  his  debt ;  whereas  B  can  sell  upon  credit,  upon  the 
basis  which  gives  him  a  right  to  demand  payment  of  a  debt. 

SATISFACTION  IN  EXCHANGE. 

Money,  whether  composed  of  or  based  upon  a  standard 
of  value,  or  whether  consisting  of  or  based  upon  the  standard 
of  debt,  is  nevertheless  used  for  effecting  exchanges  between 
persons. 

The  public  see  no  distinction  between  money  which  is 
a  circulating  asset  and  that  other  which  consists  of  a  circu- 
lating liability ;  for  such  public  take  both  at  face  value  in 
complete  satisfaction  (exchanges)  for  debts. 

Money  based  on  a  standard  of  value  constitutes  "con- 
crete" money,  whereas  other  forms  thereof,  such  as  for  ex- 
ample Circulating  Notes,  may  be  considered  "abstract" 
money — real  money  not  yet  in  existence — but  in  its  place  we 


Credit 


have  a  promise  and  an  abundance  of  confidence  and  hope  that 
some  time  in  the  future  such  abstract  money  will  be  replaced 
with  concrete. 

In  fact  this  confidence  is  so  strong  and  this  hope  is  so 
great  that  unhesitatingly  our  government  acts  as  surety — 
promising  sound  money  to  take  the  place  of  abstract  money 
although  not  a  single  official  knows  when  or  how  such  will 
be  accompHshed. 

Money  (concrete  or  abstract)  given  in  exchange  for 
something  else  is  held  to  be  a  full  satisfaction,  and  considered 
a  "concrete  satisfaction." 

Debt  (a  promise  to  pay)  is  merely  an  "abstract"  satis- 
faction specifying  when  such  abstract  satisfaction  will  be 
turned  into  or  replaced  by  a  concrete  satisfaction. 

And  so  credit  (consisting  of  a  right  to  demand),  belongs 
in  the  realm  of  "abstract"  satisfaction,  whether  such  credit 
relates  to  merchandise  or  whether  it  relates  to  money. 

B's  right  to  payment  for  goods  sold  on  a  promise  to  pay 
constitutes  an  abstract  satisfaction  (also  an  abstract  resource), 
whereas  payment  thereof  takes  it  out  of  that  class  of  satis- 
faction by  becoming  a  concrete  one  (concrete  resource). 

It  might  be  said  that  all  business  transactions  between 
and  among  people  where  money  is  the  only  means  or  medium 
of  exchange,  constitutes  their  commerce  upon  a  "concrete"  or 
positive  or  plus  basis,  whereas  the  other  basis  operating  upon 
debts  or  promises  to  pay,  places  their  commerce  in  the  ab- 
stract or  negative  or  minus  realm. 

In  short,  to  operate  on  a  cash  basis  is  dealing  with  con- 
crete facts;  to  deal  otherwise  is  embracing  probabilities  (ab- 
stract facts) — is  taking  chances — is  speculating — is  gambling. 

To  gamble  is  to  lose  eventually — therefore  let  us  awaken 
to  the  full  realization  of  those  horrors  which  lie  in  the  wake 
of  a  persistent  gambling  in  national  or  business  dealings.  Let 
us  consecrate  our  time  and  energy  to  a  full  and  complete 
consideration  of  the  science  of  Political  Economy,  such  as  has 
never  before  been  undertaken. 

SUMMARY. 

ECONOMIC  ERRORS.  ECONOMIC  FACTS. 

This  is  the  credit  age.  Phis  is  the  age  of  debt,  debtor  age. 

This  is  the  age  to  get  credit.        This  is  the  age  to  offer  and  assume 

debts  in  exchange  for  anything  of 

value. 
A  has  great  credit.  A  has  ability  to  assume  great  debts. 

To  buy  goods  on  "credit"  To  buy  goods  on  "debt." 

Credit-money  Debt-money,  circulating  liability. 

Credit  a  purchasing  power.  Debt   (ability  to  assume  a  debt)  has 

purchasing  power. 


64  Constructive  Economics — 2nd  Supplement 

The  whole  history  of  humanity  bears  evidence  that  as  sl 
general  rule  no  mistakes  of  vital  importance  have  been  dis- 
covered until  the  11th  hour  when  the  inevitable  horrors  ac- 
companying a  threatening  destruction  created  an  awakening; 
and  only  in  the  12th  hour,  as  a  man  grasping  after  straw  to 
save  himself,  "were  changes  made"  correcting  such  mistakes. 

A  new  era  in  economics  is  at  hand.  The  Labor  Certifi- 
cates will  be  found  to  be  the  pivotal  point  upon  which  all  in- 
dustrial relations  will  swing  gradually  from  their  extreme  lim- 
its of  individual  ownership  to  the  other  extreme  of  full  and 
complete  national  ownership  of  everything  of  value.  In  this 
swing  from  one ''extreme  to  the  other  extreme,  all  customs, 
all  rules  and  regulations  appertaining  to  the  present  system 
will  be  gradually  swept  aside  and  discarded  only  to  be  re- 
placed by  the  very  simplest  customs,  the  simplest  rules,  and 
the  simplest  regulations;  so  simple  that  all  will  understand, 
and  therefore  confusion  and  misunderstanding  will  find  no 
place  of  abode  either  in  the  thoughts  or  lives  of  men. 

No  matter  what  economic  changes  an  evolution  may  re- 
quire either  during  or  after  its  transition  from  individual  to 
national  ownership,  nevertheless  the  operation  of  the  economic 
principle  of  credit  and  debt  will  remain. 

In  the  one  instance  credit  will  be  in  operation  on  the 
smallest  scale  possible,  and  in  the  simplest  manner  obtain- 
able. Such  will  consist  only  of  the  demand  of  and  by  em- 
ployees of  the  government  for  their  wages  earned  between 
the  intervals  of  payment,  whereof  the  nation  acting  through 
its  political  agencies  will  become  the  debtor  to  its  employees 
until  such  debt  is  discharged  by  the  payment  of  wages  due 
them. 

The  employees  while  at  work  will  each  be  building  up 
credit ;  and  the  nation  correspondingly  thereby  becoming  in 
debt. 

On  payday  the  governmental  agents  will  deliver  the  neces- 
sary mediums  of  exchange  (Labor  Certificates)  "certifying"' 
that  labor  has  been  performed  for  the  nation;  and  these  cer- 
tificates will  enable  its  possessor  to  effect  exchanges  for  what- 
ever may  be  needed,  for  which  the  nation  is  indebted  to  him. 

In  its  final  analysis  and  application  "credit  and  debt" 
will  be  in  operation  on  the  smallest  scale  and  be  limited  en- 
tirely to  the  government  and  the  employees  toiling  for  the 
nation. 

There  will  be  no  relationship  of  debtor  and  creditor  aris- 
ing between  vendor  (the  government)  and  vendee  (individ- 
uals) in  the  transfer  of  commodities — using  the  common 
parlance  all  dealings  will  be  on  a  "cash  basis." 


Cbedit  65 

In  another  instance  credit  and  debt  will  manifest  them- 
selves on  the  largest  scale  possible  with  every  nation  as  evi- 
denced by  industrial  relations  of  each  between  and  among 
foreign  nations. 

It  is  therefore  not  only  most  important,  but  also  abso- 
lutely necessary  that  we  begin  now  in  the  11th  hour  to  in- 
vestigate and  analyze  those  means  (CONTRACTS)  whereby 
industrial  relations  are  and  have  been  maintained  involving 
the  creation  of  debt  and  credit  and  the  relationship  of  debtor 
and  creditor. 

I  fully  realize  that  in  common  parlance  the  use  of  the  word 
"credit"  sounds  sweeter,  more  pleasing,  but  more  camou- 
flaging than  the  word  "debt"  even  though  the  latter  expresses 
the  truth  and  fact. 

To  buy  goods  on  "debt  or  even  on  time"  are  expressions 
which  do  not  seem  dignified  enough  for  our  foolish  people 
in  this  age  of  civilization. 

For  tho.se  who  do  not  like  the  truth,  and  who  consider 
qualifications  for  assuming  debts,  an  asset  or  capital,  or 
wealth — I  am  going  to  offer  for  their  approval  a  new  expres- 
sion which  will  at  all  times  not  only  convey  the  true  facts 
with  reference  to  debt,  but  at  the  same  time  satisfy  all  those 
writers  who  claim  that  "qualifications  for  borrowing"  (quali- 
fied to  assume  a  debt)  is  in  a  sense  "capital  or  wealth." 

I  suggest  that  the  public  substitute  the  expression  of 
"BLUE  SKY  CAPITAL,"  for  the  popular  expression  "credit." 

I  make  this  suggestion  for  two  reasons:  First,  because 
a  debt  is  a  promise  to  pay  at  some  future  time.  The  future 
always  lies  in  the  far  ofif  blue  sky.  Secondly,  because  credit 
is  considered  by  many  as  "capital,"  so  that  in  and  by  this  sub- 
stitution I  am  at  least  satisfying  science,  and  also  those  writers 
who  mistake  the  ability  to  assume  a  debt,  to  be  also  "capital." 


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